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South African real estate investment trusts (Reits) ticked higher in July, outperforming both equities and bonds as strong income growth offset a retreat in the bond market.
The sector delivered a total return of 1.4% in July, compared with a 1.2% gain for the JSE all share index, while the all bond index fell 1.4%, according to the latest SA Reit Association Chart Book compiled by Merchant West Investments.
“For most of the past two years, the sector’s returns have moved with the bond market and the interest-rate view. July marked a break from that pattern, with Reits delivering a positive return despite bonds retreating, suggesting income growth is now doing the work that lower interest rates did through 2024 and 2025,” said Merchant West Investments head of listed property and portfolio manager Ian Anderson.
According to the association, the performance lifted the sector’s year-to-date (to the end of July) return to 7.8%, comfortably ahead of the all bond index’s 2.8% gain and the all share index’s 1.8% fall.
Rolling 12-month distribution growth remained at 10.58% at the end of June, marking a fifth consecutive quarter in which dividend growth exceeded inflation. Although consumer inflation accelerated to 5% in June from 4.5% in May, distributions continued to outpace price growth by more than five percentage points.
“The gap between distribution growth and inflation has narrowed as inflation has picked up. It nonetheless remains above five percentage points,” Anderson said.
The South African Reserve Bank kept the repo rate unchanged at 7% in July after inflation reached a two-year high, signalling that monetary policy is likely to remain restrictive in the near term.
Among the larger listed property stocks, Vukile gained 4.9% during the month, Burstone 3.4% and Redefine 2%. Texton was the best-performing stock, climbing 14.5%, although it remained down 20% for the year.
Corporate activity slowed after the June reporting season but remained active. Hyprop raised about R739m through an accelerated bookbuild after strong institutional demand, with the proceeds earmarked for acquisitions in Eastern Europe and development projects in South Africa.
Fairvest also outlined plans to separately list its Onepath fibre infrastructure business as a Reit. The portfolio comprises 31 township fibre networks connecting about 383,000 homes and represents an investment of R1.67bn.
Spear continued recycling capital, disposing of assets worth about R108m while advancing acquisitions valued at R1.42bn. Accelerate Property Fund and Delta Property Fund also sold properties as they continued to reduce debt.
SA Reit Association CEO Joanne Solomon said the sector’s performance showed investors remained willing to back companies with strong fundamentals despite a more challenging rate environment.
“What July demonstrated is that the sector does not need interest-rate cuts to support performance. Income growth comfortably ahead of inflation, stronger balance sheets and continued access to capital provide a solid foundation for returns,” she said.
Anderson expects balance sheet strength to become an important differentiator as borrowing costs remain elevated.
“The key risk is that inflation proves more persistent, bringing further rate increases into play. July highlighted the widening gap between funds able to raise capital for growth and those selling assets to reduce debt,” she said.