Hedged debt, low gearing and offshore exposure make REITS well-placed to weather SA’s current economic and political volatility

Posted On Wednesday, 19 July 2017 22:23 Published by
Rate this item
(0 votes)

Downgrading to junk status and ongoing political tomfoolery might make South African investors a little anxious about protecting their investment portfolios against the market volatility resulting from the uncertainty created by the current environment.

But, as the South African Real Estate Investment Trust Association (SA REIT) points out, REITs are relatively well-placed to weather the expected instability, making them an excellent hold during periods of volatility.

In spite of these uncertainties, REITs are forecast to post total returns in the range of 8% to 10% for 2017.

“It is important to realise that many SA REIT counters were aware of the possibility of a rating downgrade and had planned accordingly,” says SA REIT Chairman Izak Petersen, who is also CEO of Dipula Income Fund. “This is where the benefit of experienced and professional management can be clearly seen.”

Offshore diversification is one strategy that local REITs are also employing.

“SA REITs currently have offshore exposure of about 30% to 40% of their earnings,” explains Mark Stevens, Chairman of the SAREIT Marketing Committee and CEO of Fortress Property Fund. “This provides a buffer against local market uncertainty and serves as a Rand hedge.”

Interest rate hedging is another strategy.

REITs in South Africa have on average typically hedged about 80% of their interest exposure with the hedge expiry profile being three- to four-years, making them less vulnerable to interest rate fluctuations due to a volatile Rand.

And finally, low gearing levels in the sector ensures REITs are resilient to fluctuations.

“With low loan-to-value (LTV) ratios and strong balance sheets, REITs are able to wait out market ebbs and flows, and perform well over the longer-term horizon,” points out Petersen.

REITs have in fact consistently outperformed other investment sectors in the last 20 years.

“Compared to the 16% average return generated by equities over that time, listed property has achieved a 19% average return,” explains Petersen.

The SA REIT Association represents the South African listed REIT (real estate investment trust) sector, which is one of the most active and innovative sectors on the JSE. SA REIT members comprise all listed SA REITs and represents a market capitalisation of around R400 billion. The quality of these REITs influence our economy and the quality of people's lives.

Last modified on Wednesday, 19 July 2017 22:35

Most Popular

Portugal ramps up its appeal for South Africans seeking EU citizenship

Feb 07, 2018
Porto view across Douro River
Foreigners - including South Africans, wanting to acquire freedom of movement for…

Check your zoning rights before buying a residential property for business use

Feb 07, 2018
PJ Veldhuizen
How often do we see those adverts “perfect for home-office” or “ideal for business” on an…

SA REITs deliver another year of double-digit growth in 2017

Feb 07, 2018
Izak Petersen SA REIT
The FTSE/JSE South African Listed Property Index (SAPY) achieved total returns of 17.2%…

Rabie Property Group develops two exciting new office developments for Century City

Feb 07, 2018
Sable Park North Sable Road View
Two exciting commercial developments, including new offices for Discovery, are being…

Celebrations as new Thavhani Mall taxi rank opens

Feb 01, 2018
Brandon Nesengani
Shoppers can now get to Thavhani Mall in a flash thanks to the brand new taxi rank that…

Please publish modules in offcanvas position.