REIT investment properties losing value, outlook uncertain
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Property investors would have shuddered as the value of most of their properties were written down by billions of rand through the Covid-19 pandemic, putting the balance sheets of their REIT investments, already struggling just to collect rents, under additional pressure.
Declining property valuations have been a feature of the results of many of the REITS reporting their financial results in the past year, and although these write-downs have not led to any bankruptcies, with loan-to-values generally healthy, property analysts believe the bottom has not yet been reached on property valuations.
Not all REITS are similarly affected though, cautions Reitway Global’s chief executive Greg Rawlins, who said that, for example, the limited self storage and logistics focused companies in South Africa were following global trends and growing in value and returns much faster than other traditional property asset types.
One of the biggest companies to recently have the value of its properties written down is Growthpoint Properties, which is also the largest South Africa primary listed REIT, with a diversified local portfolio of retail, office and industrial properties.
Over the past two years, its latest results show, the value of its South Africa portfolio has been written down by R12.5 billion due to the poor property market fundamentals, driven mainly by income uncertainty from the country’s economic challenges and the impact of Covid-19.
And in the 12 months to June 31, the value of all its assets was written down by 8.4 percent to R152.8bn from R166.7bn at the end of the prior financial year.
Another local heavyweight among the REIT’s is Attacq, which is focused on Waterfall City and which owns a portfolio of retail, light industrial, office, hotels and residential assets. It said that the negative movements in the fair value on investment property during the year to June 31 amounted to R1.5bn, while in 2020, the negative value was R1.6bn.
“External valuers are faced with an unprecedented set of circumstances on which to base a judgement as a result of the Covid-19 pandemic. Consequently, less certainty – and a higher degree of caution – should be attached to the valuations provided than would normally be the case.”
Resilient, another REIT that focuses on dominant regional shopping centres with national tenants, saw its assets revalued upward by 2.2 percent in the year to June 30, following a very limited downward valuation the previous year, as footfalls at its centres tended to decline less as shoppers needed to go there to do essential shopping.
Vukile’s chairperson, Nigel Payne, said Covid-19 had increased the pace of change in retail over the past year. Changes such as the shift to online shopping escalated through pandemic lockdowns to radical changes in the way customers work, socialise and live.
He said in the annual report, however, that physical retail space, however, will remain critical to the use of omnichannel services by retailers.
South Africa Property Owners Association chief executive Neil Gopal said property valuations were a function of income streams, and with the negative impact of Covid-19 on income streams, “we would need economic growth to address this”.
He said the influence of online shopping did not necessarily have an impact on property valuations because South Africa had not seen as big an uptake of online shopping trends as has been the case in more developed countries such as the US and EU.
South Africa ranks sixth in the world for its number of shopping centres, with more than 24 million square metres of combined floor space.
Rawlins said three ingredients were required for successful property investment: good management, good properties and a growing macroeconomic environment, and in South Africa, the economy, with its steadily declining consumer disposable incomes, “is just crushing” for the local commercial property sector.
And while he did foresee the local commercial property market rebound, it would be off a low base. He did not see a point in the near future where they would be able to produce the growth and returns of some other REITS in other parts of the world.