The SA Reit Association has appointed a former banker as its new CEO in a move to win back investors following a 2018 property scandal and the fallout of the Covid-19 pandemic, which is set to make 2020 the worst year for the sector.
The association has brought on board Joanne Solomon, a former executive at Nedbank Property Finance, to drive the formalisation of real estate investment trusts (Reits) so that investors can see them as an asset class, separate from property development funds, general equities and bonds.
Reits are income-focused property funds that pay out regular dividends and tend to serve pensioners and other income investors.
Reits must pay a minimum of 75% of their distributable income as a dividend each financial year. A number of SA Reits paid 100% of their income out before Covid-19 led to the economic lockdown. Since then, a number have changed their payout ratios, with some putting dividend payments on hold as they look to conserve cash amid Covid-19 uncertainty.
The attractions of being a Reit include relatively easy access to capital and tax benefits. Profits are taxed in the hands of investors and not at company level. Between 2014 and 2017 more Reits listed on the JSE than any other company type. The Reit sector delivered double-digit total returns for a number of years, beating equities and money markets.
However, over the past three years Reits have been a huge disappointment. In 2018, the listed property sector lost 25.26%, while it returned 1.92% in 2019.
In the past, there hasn’t been a dedicated source of Reit research for investors and other members of our industry
— Joanne Solomon, SA Reit Association CEO
Solomon said she wants to win the favour of equity investors who have become sceptical about the future of listed property in SA.
This comes as the FTSE/JSE SA Listed Property Index (Sapy), which includes the 20 largest and most liquid property funds, has lost 50% of its value since the start of 2020, while the All Property Index (AllProp), which covers all listed property funds, has lost 51.2% in the same period.
The last time listed property had a year to forget was in 2018, when the scandal around the Resilient group of companies derailed the sector. Many investors sold out of listed property companies after allegations that the former Resilient stable of companies had used interrelated party deals to boost dividends and that insiders had manipulated share prices.
The Financial Sector Conduct Authority (FSCA) later cleared the Resilient stable, which included Resilient Reit, Fortress Reit, Nepi Rockcastle and Greenbay Properties, of the allegations.
Solomon said that seven years after listed property companies took on a new capital structure and became Reits, the association needs to do more to promote its members.
“I started by researching the best practice of European, American and Australian Reits and how it can be implemented in SA. Now that the Reit dispensation has been used in the country for a few years, I believe the sector can become more sophisticated, and attract more institutional and retail investors,” she said.
Estienne de Klerk, chair of the SA Reit Association and SA CEO of listed group Growthpoint Properties, said the association has been “repositioned” in 2020.
“We have made good progress in ensuring the association is positioned to provide a compelling support structure for its members and meet their needs during this challenging time for our industry. Joanne Solomon’s appointment as CEO is a significant milestone, bringing a wealth of relevant experience and the dedicated capacity to fulfill our strategic objectives and drive new initiatives,” he said.
As part of the repositioning process, a range of new initiatives are being rolled out, including the establishment of two new committees, institutional and research; and a comprehensive stakeholder engagement plan to grow the involvement of institutional investors, universities and large private property investors, he said.
Solomon said the new research committee, chaired by Liberty Two Degrees CEO Amelia Beattie, will provide “high-quality, independent research” related to the SA listed property sector.
“In the past, there hasn’t been a dedicated source of Reit research for investors and other members of our industry,” she said.
The association will release the second SA Reit Best Practice Recommendations for Financial Reporting in 2021.
Said Solomon, “I am excited to continue working with current and future members to drive good governance, innovation and international best practices that will maintain Reits’ position as an attractive investment class in the long term.”
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