Tag Archives: Merchant West Investments

South Africa’s best performing REITS right now

South Africa’s REIT sector maintained its upward momentum in May 2025, delivering a 4.1% return for the month.

Once again, it outperformed both the broader equity market (3.1%) and bonds (2.7%), reinforcing its recovery trajectory.

This latest gain follows a strong 6.9% return in April, bringing the sector’s year-to-date performance to 6.7%—a notable rebound after a sluggish start in January.

Although REITs still lag behind the broader equity market’s impressive 14% year-to-date growth, they have now outpaced bonds in 2025.

This shift signals renewed investor confidence, coinciding with South Africa’s 10-year government bond yield recently dipping below 10% for the first time in over three years.

Ian Anderson, head of Listed Property and portfolio manager at Merchant West Investments – and compiler of the SA REIT Association’s monthly Chart Book – attributed the sector’s improving sentiment to several key drivers.

“The positive outlook is largely driven by expectations of lower interest rates in South Africa, a small reprieve in global tariff tensions, and growing evidence that property fundamentals are strengthening. These trends set the stage for higher distributable earnings growth across the sector in 2025 and 2026.”

Several REITs published financial results in May, providing further evidence of the sector’s ongoing recovery.

Redefine Properties, for instance, reported interim results for the period ending February 2025, with revenue rising 3.5% and distributable income per share increasing 0.7%.

The company maintained its full-year guidance, projecting distributable income per share between 50 and 53 cents – representing growth of 0% to 6%.

Equites Property Fund posted full-year results in line with expectations, increasing distributions by 2.1% to 133.92 cents per share.

More notably, the company’s guidance for 2026 exceeded consensus, with anticipated distribution growth between 5% and 7%, driven by robust rental escalations and a premium logistics portfolio shaped by two years of strategic asset recycling.

Equites was the top-performing REIT in May, with its share price advancing 10%.

Spear REIT also delivered strong results, benefiting from its focused strategy in the Western Cape. Its share price rose 9% following the release of its full-year results for the period ending February 2025.

The company also announced the acquisition of Berg River Business Park in Paarl for R182.15 million through an all-share transaction.

Other REITs reporting in May included Burstone, Delta Property Fund, Dipula Properties, Emira Property Fund, and Octodec Investments. Across the board, a consistent theme emerged: improving property fundamentals across all sub-sectors, further boosting investor sentiment.

The total market capitalisation of South Africa’s REIT sector has now exceeded R250 billion—its highest level since January 2020.

“With further interest cuts a possibility, stabilising macroeconomic conditions, and improving company guidance, investor confidence remains strong, and the momentum is likely to carry through the remainder of 2025,” said Anderson.

SA real estate outperformed equities and bonds in April as rate cut expectations lift investor mood

The South African Real Estate Investment Trust (REIT) sector surged 6.9% in April, outperforming equities (4.3%) and bonds (0.8%), despite fewer trading days due to public holidays.

Investor sentiment was lifted by growing expectations of accelerating distributable income and potential interest rate cuts by the South African Reserve Bank (SARB).

“This was a sweet month for the sector. The sector continues to offer value, trading at historically high discounts to net asset value which excludes the Covid-19 period,” said Ian Anderson, head of Listed Property and Portfolio Manager at Merchant West Investments, and compiler of the SA REIT Association’s monthly Chart Book.

April also saw strong trading activity, with turnover exceeding R12.2 billion — the highest monthly volume in 2025 so far — indicating renewed investor appetite amid rising share prices.

Leading the gains were SA Corporate (+15.3%), Attacq (+13.3%), Resilient (+10.9%), and Redefine Properties (+10.5%).

“There was little company-specific news to drive these moves, but a more favourable macro-economic and political backdrop certainly played a role,” added Anderson.

Inflation fell below the SARB’s lower target range in April, reinforcing expectations of a rate cut at the upcoming Monetary Policy Committee meeting in May.

The market is now anticipating at least one additional cut before year-end.

“Lower interest rates not only support property valuations through reduced discount rates but should also lift distributable income growth across the sector in 2025 and 2026, especially with average loan-to-value ratios sitting between 35% and 40%,” said Anderson.

He noted that a stronger rand and lower oil prices are likely to help keep inflation in check, providing the SARB with further room to reduce rates.

Meanwhile, the proposed 0.5% VAT hike from the National Budget has been suspended following pushback from within the government of national unity.

On the global front, easing US-China trade tensions and US President Donald Trump’s delay of new tariffs on several countries supported risk appetite, benefiting global equities and indirectly boosting sentiment toward South African REITs.

In corporate developments, Accelerate and Delta announced further asset disposals to shore up their balance sheets. Emira disclosed the departure of CEO Geoff Jennett due to strategic disagreements with the board.

Meanwhile, Vukile, through its Castellana Properties subsidiary, acquired Forum Madeira in Portugal for €63.3 million, extending its international retail footprint.

South African REIT sector surprises in face of global market turmoil

There’s a silver lining for South African real estate investors despite ongoing turbulence in global markets.

Ian Anderson, head of Listed Property and portfolio manager at Merchant West Investments and the compiler of the SA REIT Association’s monthly Chart Book, highlights that the local REIT sector is in a far stronger position today than it was five years ago.

Anderson contrasts the current environment with the sharp downturn the sector faced during the Covid-19 pandemic. “The current turmoil in global financial markets comes almost exactly five years after the last major drawdown for South Africa’s listed property sector, when the South African economy was shuttered at the start of the pandemic.

“Between March 2017 and March 2020, South African REITs, on average, lost more than 70% of their value. In the years since, the sector has clawed back nearly 68% in value (excluding dividends), though it remains more than 50% below March 2017 levels.”

With fresh waves of political and economic uncertainty gripping global markets, many investors are wondering if history might repeat itself. Anderson, however, reassures them.

“Large drawdowns from current levels are highly unlikely,” he said, citing several key factors. First, South African REITs are now trading at significant discounts to their net asset value, a stark contrast to the premium conditions at the end of 2017.

“Second, the sector has focused on strengthening balance sheets in the post-pandemic years through lower payout ratios, strategic asset recycling, and timely equity capital raises. This has helped reduce loan-to-value ratios across most of the sector.

While economic growth may be sluggish or even negative, Anderson points out that the context is vastly different from 2020. “Economies remain open, tenants continue to trade, and rents are being paid. That’s a far cry from the conditions during April and May of 2020,” he said.

However, Anderson cautioned that short-term volatility is likely to persist, particularly with global headlines dominated by geopolitical tensions and trade disputes, especially between the United States and China.

Beneath the noise, property fundamentals in South Africa continue to improve. “Companies that reported results in March, including sector heavyweight Growthpoint Properties, all reported improved trading conditions in their South African portfolios,” Anderson said.

Growthpoint, for instance, has revised its guidance upward, shifting from a decline in distributable income per share (DIPS) to expected growth between 1% and 3% for the year ending June 2025.

The company also saw a 6.2% increase in South African net property income for the six months to December 2024, while the V&A Waterfront recorded a remarkable 16.6% surge in like-for-like net property income, driven by increased tourism.

Other REITs are showing positive momentum too. Resilient exceeded its dividend guidance with a 7.5% increase in comparable net property income, while Hyprop Investments delivered improved results and raised its dividend payout ratio thanks to a healthier balance sheet.

Although 2025 has so far been more subdued than 2024, Anderson remains optimistic about the sector’s future. “The improving property fundamentals in South Africa continue to point towards a return to net property income and dividend growth for the sector over the next 2 to 3 years,” he said. “Investors should not lose sight of that.”

In Anderson’s view, the South African REIT sector is not only stronger than it was five years ago—it’s better positioned to navigate the uncertainties that lie ahead.

Sluggish start for REITs in 2025

South Africa’s Real Estate Investment Trust (REIT) sector showed a recovery in February, rebounding by 1.2% after the price declines seen in January.

This return outpaced the broader equity market, which remained flat, and the bond market, which posted a modest 0.1% gain.

Despite this bounce-back, the sector has still posted a 2.5% decline year-to-date, underperforming both the equity and bond markets.

According to Ian Anderson, head of Listed Property and portfolio manager at Merchant West Investments as well as compiler of the SA REIT Association’s monthly Chart Book and Richard Henwood, portfolio manager at Merchant West Investments, the overall investment outlook for the sector remains positive for 2025.

They believe that investors can expect a modest improvement in property fundamentals along with the possibility of lower interest rates.

This outlook is supported by recent developments, such as a 25-basis point rate cut by the South African Reserve Bank, the formation of a Government of National Unity, a reduction in loadshedding and the introduction of the two-pot retirement system at the end of 2024.

With these factors in mind, the sector is projected to see average growth in distributable income of 3% to 5% – a positive turnaround after three years of stagnation.

However, Anderson and Henwood caution that the market may face increased volatility due to global geopolitical tensions, particularly in relation to US President Donald Trump’s ongoing threats of higher tariffs, which could fuel inflation and impact economic growth globally.

During the reporting period, volatility remained elevated across global financial markets, with heightened concerns over geopolitical risks.

The potential for increased tariffs, especially on countries like China, Mexico, and Canada, could create inflationary pressures that complicate central bank efforts to cut interest rates further in 2025.

In addition, weaker economic data from the US in late February raised concerns over the future growth prospects of the world’s largest economy.

In South Africa, the 2025 Budget Speech was delayed after cabinet rejected proposed fiscal measures, including a 2% VAT increase, further contributing to uncertainty in the market.

Amid these challenges, individual companies in the REIT sector have shown varying degrees of success.

For example, Burstone’s partnership with TPG Angelo Gordon saw the acquisition of logistics assets worth A$280 million in Australia, while Dipula Income Fund reported strong growth in retail tenant turnover and improvements in operating metrics.

Equites Property Fund also remains optimistic, forecasting stable dividends and a reduction in its loan-to-value ratio.

Overall, while the South African REIT sector continues to face challenges, particularly from global uncertainties, the sector’s fundamentals appear poised for gradual improvement.

Best performing property stocks in South Africa

South Africa’s Real Estate Investment Trust (SA REIT) sector is poised to see positive distributable income growth for the first time in three years, says Ian Anderson, head of listed property and portfolio manager at Merchant West Investments.

However, interest rates are unlikely to fall as swiftly or as significantly as previously anticipated, while the signing of the Expropriation Bill into law by president Cyril Ramaphosa has added uncertainty for some investors.

“The threat of additional loadshedding in February is also likely to dampen investor sentiment and, in this environment, SA REITs may struggle to build on the strong performance seen last year in the near term,” said Anderson, who also compiles SA REIT Association’s monthly Chart Book.

The Chart Book pointed to the best and worst performing REITS over the past year:

Anderson said SA REITs began 2025 on the backfoot, following US president Donald Trump’s threat to raise tariffs on countries such as Canada, Mexico and China.

As a result, global inflation is expected to remain elevated for longer, which presents challenges for REITs and other interest-rate sensitive sectors. January’s share price performance underscored investor concerns.

At their first policy meeting of the year, the US Federal Reserve opted to keep interest rates unchanged, marking the first time since July 2024 that no rate cuts were implemented. This decision contributed to higher US bond yields in January.

Meanwhile, the South African Reserve Bank’s Monetary Policy Committee did reduce interest rates by 25 basis points, although the decision wasn’t unanimous.

Future rate cuts will depend on the outlook for global inflation and the scale of tariffs introduced by Trump.

Against this backdrop, South African REITs saw a 3.6% decline in January, underperforming the broader equity market, which rose 2.3%, driven by strong returns from the precious metals sector and the bond market, which posted a modest 0.4% gain due to attractive real yields in South Africa.

Anderson said it is not unusual for South African REITs to start the year with negative returns. Since 2020, they have only delivered a positive return in January once, in 2024.

This year, only three companies posted positive returns in January, with Texton Property Fund leading the pack with a 12.5% gain.

Accelerate Property Fund (+2.1%) and Spear REIT (+0.9%) also saw modest price increases.