September 22 2025 18:00
SA Corporate Real Estate (SACRE), the JSE-listed real estate investment trust (Reit) recently released financial results for the six months to the end of June 2025, wherein the group achieved a 7.5% increase in its distribution per share to 13.01 cents per share. This was at a 92.5% payout ratio, meaning the group paid out 92.5% of its distributable income as distributions. In the comparable 2024 period, SACRE paid a 12.11 cents per share distribution at a 90% payout ratio.
SA Corporate Real Estate, founded in 1995, is one of the oldest established property companies in the South African market. The group saw its total net property income increase 3% to R756.6m from R734.5m in the prior comparable 2024 period. Its loan-to-value fell slightly from 42% at the end of December 2024 to 40.3%.
CEO Rory Mackey said SA Corporate which has R19.1bn worth of assets under management, had seen improved performances across many of its properties. SA Corporate has been investing in residential properties around the country quite aggressively in recent years. In this set of financials, the group saw an increase in student rentals in non-metro areas. There were also general rental escalations in its other residential properties. There was also improved retail letting and decreasing vacancies.
SACRE owns a focused portfolio of quality industrial, retail and residential buildings located primarily in the major metropolitan areas of South Africa with a secondary node in Zambia. As at June 30 2025, the property portfolio consisted of 250 properties, with 1 655 326m2 of gross lettable area, valued at R17.7bn, and exposure to direct and listed property valued at R1.8bn in Zambia.
“For the six months ended 30 June 2025, the group delivered results in line with guidance, reporting year-on-year distributable income growth per share of 4.6%. Like-for-like revenue and net property income increased by 5.8% and 4.9%, respectively, compared to the prior period, while vacancies declined from 3.4% to 3.0% over the same period,” Mackey said.
“This strong performance validates the group’s strategic focus on delivering value to shareholders through the creation of a defensive, diversified portfolio,” he said.
He said the the portfolio included a best-in-class residential portfolio that is focused on inner city precincts and suburban estates, that delivers affordable, well-managed rental housing, offering a safe and secure environment enhanced by amenities, for a superior lifestyle .It also included a retail portfolio specialising in convenience-oriented shopping centres with a focus on essential retail; and a logistics portfolio that is invested in high-demand, strategic locations able to support supply chain resilience and e-commerce growth at competitively priced rentals, according to Mackey.
Mackey said SACRE’s investment in residential property was underpinned by the global case for the sector. The value drivers were not only short-term rental escalation, but also included stable occupancy, resilient income streams, and low return volatility. MSCI’s global index showed that residential property has been the second-best performing property class globally since 2001, after industrial, with lower volatility than both industrial and retail. Yet, in South Africa, residential remains underrepresented, accounting for less than 2% of the real estate investment trust (Reit) sector, compared to 21% of global investment property by value. In the US, residential Reits delivered circa 10% compound annual growth rate (CAGR) in total shareholder returns over the past decade, outperforming bonds (7% to 8% CAGR) and Reits focused on offices (7.5% CAGR) and retail (6.5% CAGR).
The group’s residential exposure offered the opportunity to unlock value by selling non-core apartments individually into the retail market. These disposals generated gains derived from the premium that homeowners were willing to pay over the investment property carrying values reflected in SACRE’s accounts. The sales pipeline over the next three years comprises more than 3 000 units valued at circa R1.4bn.
To date, realised gains have exceeded 60% relative to cost and 20% relative to book value.
The group’s residential portfolio produced a financial and operational performance that corroborates the assertion of residential property being a defensive, low volatility asset class capable of delivering returns above inflation. For the six-months ended 30 June 2025, the portfolio reported year-on-year like-for-like revenue and NPI growth of 5.4% and 5.2% respectively. Growth was driven primarily by an increase in student rentals in the non-metro properties, broader residential rental escalations, and improved retail letting, renewals, and vacancy reversions.
Despite this above-inflation growth, the residential portfolio’s results were negatively affected by two factors. These were municipal rates increases imposed by the City of Johannesburg on sectional title properties because of a rates policy change, which reduced like-for-like NPI growth by 1.5%. Also, the reversal of historic utility accruals of R10.7m in the prior year increased the 2024 NPI. Without this, the growth in NPI in the current period would have been 2.7% higher.
In terms of changes to the retail portfolio, the redevelopment of Montana Crossing in Pretoria was completed, with the introduction of Checkers Fresh X, Checkers Liquor and Petshop Science as anchor tenants replacing Pick n Pay. SA Corporate anticipated a 30% uplift in the rental income of Montana Crossing for the 2026 financial year as a result. Other redevelopments were planned at Springfield, where Shoprite will replace the Pick n Pay store which is underperforming. Town Square will see Clicks expanded by an additional 180m². Cambridge Crossing in Paulshof Johannesburg will see the Off the Grid sports bar replaced with a 560m² upmarket independent pharmacy, expected to enhance foot traffic around the centre, Mackey said.
Coachmans Crossing in Bryanston will see its underperforming supermarket replaced with Berliner Deli, which is a butchery and liquor store, as well as a Mugg & Bean restaurant. All redevelopments are expected to be completed by the fourth quarter of 2025.
Mackey said the industrial portfolio delivered robust results, reporting zero vacancies at 30 June 2025 and like-for-like revenue and NPI growth of 3.8% and 4.0% respectively, compared with the prior reporting period.
“Renewal reversions continue to trend strongly positive, with lease renewal reversions in the range of 2.6% to 6.9% achieved across 14 064m² of space up for renewal. Management is also in the process of negotiating an early renewal of a 42 144m² lease, extending the lease term to 2030,” said Mackey.
Redevelopment has been planned at 5 Westgate Place, Westmead and Suffert Street, Pinetown for circa R40m.
The Zambian joint venture (“JV”) delivered distributable income growth of 8.9% in USD terms, supported by the elimination of the 16% property revenue tax on Acacia Park and Jacaranda Mall rental income, following their transfer into the Real Estate Investments Zambia plc (REIZ) Reit structure.
SACRE expected to transfer East Park Mall, its flagship Zambian property, into REIZ in the fourth quarter of 2025. This will unlock additional shareholder value through the elimination of approximately $1m in annual rental revenue taxes that would otherwise have been payable.
The weighted average cost of funding sat at 9.0% at the end of June compared with 9.6% at the end of December 2024. Post June this number has improved to 8.9%. This cost related to the weighted average cost of funding exclusive of swaps. The weighted average swap tenor was at 1.5 years compared with 1.4 years at the end of December 2024. Post June 2025, this number has improved to 3.1 years.
SACRE’s effective fixed debt sat at 58.5%, compared with 60.4% at the end of December 2024. Post June 30 2025, this number improved to 66.9%. The group’s net interest cover ratio (ICR) remained at 2.0 times as it had been at the end of December 2024.
The company’s independently valued property portfolio, excluding properties held in the Zambian JV, decreased by R241.3m to R17.7bn in the six months to 30 June 2025 compared with R18bn at the end of December 2024. The like-for-like portfolio held for the six months to 30 June 2025 increased by R64.7m to R16.0bn. The decrease in the property portfolio was largely driven by net disposals of R378.7m.
The residential portfolio delivered a strong performance for the six months ended 30 June 2025, which is expected to be sustained for the remainder of the financial year. The portfolio would benefit from positive rental growth and low vacancy levels.
Momentum in apartment sales was anticipated to build as the group strengthened its sales channel capacity. The group’s strategy is to increase its exposure to suburban estates with its inner city residential portfolio being restricted to the five precincts in which it is currently dominant.
In the retail portfolio, vacancies were expected to remain low at levels consistent with those reported for the first half of the year, supported by positive lease renewal reversions and average rental escalations of 6.0%, comfortably above prevailing inflation.
The industrial portfolio was anticipated to have negligible vacancies for the remainder of the year. Renewal reversions on leases expiring in the second half are projected to be positive, with escalations averaging 6.0%, also well ahead of inflation.
Distributable income per share growth for the year to end-December 2025 was estimated at between 4.0% and 5.0% and distribution per share growth at between 7% and 8%.
SACRE’s share price closed 0.32% higher at R3.09 on Monday. The stock is up 5.48% year to date and 45.97% on a three-year basis.
alistair@propertyflash.co.za
