South African REITs position for post-COVID-19 recovery and long-term growth

Joanne Solomon

Joanne Solomon is the CEO of SAREIT. She holds a B Economics degree and is a seasoned marketer with 22 years of experience. Her long track-record stems from working for one of South Africa’s largest financial institutions, where she held executive positions in commercial property finance and corporate and investment banking.

Waterfall City Development
The South African property sector in general, and REITs in particular, have been navigating a very challenging period marked by significant socio-economic headwinds, changes in overall fundamentals for the asset class and structural shifts in key sub-sectors. These trends have all been compounded by the onset of a pandemic that has fundamentally changed the way we work, live and play since the beginning of 2020.
Understanding the need to step up support in response to the challenges faced by members well before the COVID-19 pandemic, the SA REIT Association (SAREIT), which represents about 28 members listed on the Johannesburg Stock Exchange (JSE), deployed the necessary resources to become a more prominent voice for the industry and deliver on clear objectives. Some of the objectives include promoting South African REITs as an investment class locally and internationally and support members in addressing core issues and sector-specific challenges collectively.
2020 was a year of material transition for SAREIT, which included new leadership appointments and the reshaping as well as the addition of critical committees, all of which are a demonstration of the buy-in from members to drive the re-energised strategy. In particular, the pillars of governance, best practice methodologies, innovation and best-in-class reporting standards all aim to retain and prepare to woo back investors amidst ongoing uncertainty.
Faced by the unprecedented challenges brought about by lockdown restrictions, South African REITs respond swiftly by prioritising the protection of their stakeholders’ health and safety and ensuring that they could weather the storm financially. Engagements with regulators, shareholders, and other capital providers took centre stage to ensure the entire sector value chain’s survival.
SAREIT established the Property Industry Group (PIG) in April 2020 together with the South African Property Owners Association (SAPOA) and the South African Council of Shopping Centres (SACSC), assisting the industry in navigating the initial months of the pandemic. PIG proved to be an invaluable platform to address the unparalleled challenges resulting from the South African government’s response to COVID-19. This included an industry-wide assistance and relief package for retail tenants hardest hit.
The initiative expanded beyond retail and focused principally on supporting affected SMMEs across sectors, with landlords providing relief and assistance to many other tenants nationally. Consultations with regulators relating to pay-out ratios associated with JSE listing rules and regulations have also been in the spotlight and are expected to continue to ensure that our members can balance their mandate as REITs with the realities facing the sector and our economy, especially with the limited financial support that the government is able to dispense.
Habaneras Spain
A number of other notable milestones were achieved beyond the response to the pandemic. These included resolutions on several long-standing matters with the South African Revenue Service relating to Value Added Tax apportionment and other tax matters that are significant for the sector and will assist SAREIT’s members in navigating this difficult period and beyond.
The sector is now looking ahead, and 2021 has started off on a more positive note given the overall market rally since December, major political milestones – including Brexit and the US elections – as well as the roll-out of vaccination programmes that will undoubtedly result in a rebound of economic activity and have a direct and indirect impact on the South African capital markets.
SAREIT is committed to delivering the right level of support for its members by maintaining open and continuous engagements with government, regulators and other business associations with the aim to maintain a conducive business environment for the sector at large. As part of meeting this deliverable, we will be resuming our annual conference in May 2021, acknowledging both the limitations that may still exist with the need for industry’s leaders to regain access to irreplaceable engagement platforms. Key themes already under review include REITs’ relevance as an asset class, ESG considerations and the alignment of investor requirements in the current environment.
In a society with some of the deepest inequalities in the world, a strong real estate sector is a critical component to support economic growth, employment and revenues for the government. Many South African REITs remain mispriced and offer excellent value propositions for investors while being underpinned by quality assets, skilled and experienced leadership teams and the proven agility and tenacity that has been a hallmark of the SA Inc and its REIT sector. With an increasingly available fintech platform for retail investors, REITs will also continue to be the most accessible, liquid and cost-effective way to own property, thereby making it an undeniably attractive asset class in the long-term for all investors.
With many societies and economies looking to chart a path to recovery amidst ongoing short-term pressures, SAREIT is clear about its role to drive collaboration between members, global peers and other stakeholders to support good governance, international best practices and innovation that will underpin REITs’ continued eminence within the investment community, both in South Africa and internationally.