October 4 2026 16:00
CAPE TOWN, SOUTH AFRICA
JSE-listed Heriot REIT this week reported in its financial that it had delivered its third record year in a row, growing its distribution per share (DPS) 16.7% to 142.29 cents for the year ended 30 June 2026. That lands at the top end of the 14% to 17% guidance the AltX-listed real estate investment trsut, set at its interims in March, and far outpaces the 5% to 7% growth expected from the listed property sector as a whole.
Distributable earnings rose 17.8% to R458.5m, while net asset value (NAV) per share climbed 17.1% to R24.11. The portfolio, now 53 properties, was independently valued at R14.0bn, up 9.4%. Heriot again paid out 100% of distributable earnings, with net cash from operating activities of R496.4 million comfortably covering the distribution. This firmly puts Heriot at a mid-cap property fund stage.
The final dividend of 76.18 cents per share, up 17.1% on the prior period, is payable on 26 October 2026. Notably, the second half grew faster than the first (the interim was up 16.3%), driven by full ownership of Safari, the opening of the Horizon aparthotel in Sea Point and a distribution from the newly acquired Katleho office portfolio.
Over two years, DPS has compounded at 15.5% a year and NAV per share at 17.3% a year.
Malls remain the engine room
Retail generated 74.4% of group net operating income (NOI) and remains Heriot’s strongest sector, with retail NOI up 8.5% on a like-for-like basis. Tenant turnover across the 16 centres that report trading data grew 5.0% to R12.9bn, and annual trading density improved 4.6% to R39,840/m². Fourteen of the 16 centres grew turnover, ten of them by 5% or more.
The portfolio is built around lower=income, emerging-market and rural shopping centres anchored by national food retailers, and those tenants traded extremely well, as did the banks. Clothing retailers remain under pressure as cash-strapped consumers prioritise essentials. The two centres where turnover dipped were both disrupted by refurbishment work.
Leasing produced some standout deals. At Emmarentia, a 12-year food anchor renewal was signed at a 37% uplift, while at Tembisa a vacated fashion anchor was replaced at more than four times the previous rental. Denlyn and Thabong malls grew NOI by 12.9% and 11.6% respectively. The average retail rental rate rose 8.8% to R193.34/m².
Retail vacancy ticked up from 1.6% to 2.0%, almost entirely because of space being reconfigured during the Atlyn Mall refurbishment, which added a second food anchor and a drive-through restaurant. Rising municipal charges, up 8% to 10%, absorbed some of the growth.
Safari: a five-year play that paid off
The Safari Investments buyout is the defining deal of Heriot’s year. On 22 December 2025, Heriot acquired the remaining 40.8% of Safari it did not already own, concluding a five-year progression from an initial 49.2% stake to full ownership. Safari shareholders backed the scheme with 98.57% support, and Safari delisted from the JSE the following day.
The price is what makes the deal stand out. Heriot paid R8.00 per share against a Safari NAV of R12.07 per share, a total of R834.6m. That discount produced a bargain gain of R418.1m, booked directly in equity, and was a major contributor to the jump in Heriot’s NAV. The buyout was funded with a two-year facility at three-month JIBAR plus 1.17%, the cheapest debt in the group.
Heriot’s share of Safari’s distributable earnings rose 23.8% to R137.9m, adding R26.5m to group earnings, even though this year included only six months at 100% ownership. On a 100% basis Safari’s own earnings fell 6.1%, reflecting the sale of Namibia’s Platz am Meer and the interest cost of the buyout.
The underlying malls are performing strongly. Like-for-like NOI across Safari’s remaining eight centres grew 9.9%, and bringing utility management in-house lifted the cost recovery ratio from 85% to 89%. With a full 12 months of Safari at 100% in the 2027 financial year, its contribution should grow further.
Several qualities have set Heriot apart from its peers.
- Buying below value. The Safari minority (34% below NAV), Katleho (11.7% below NAV) and Thibault were all acquired at prices that created value on day one. Two industrial acquisitions since year-end were struck at take-on yields of roughly 15% and 20%.
- Defensive tenants. Food, value and essential-services retailers anchor the malls. Rent collections were 99.8% of billings and portfolio vacancy only 1.9%.
- Cheap debt. The weighted average cost of debt fell 100 basis points to 8.73%, and R1.4 billion of facilities was refinanced at lower margins. A new group treasury vehicle should keep funders competing for Heriot’s business.
- Owner-managed and vertically integrated. The Herring family and management own much of the stock, and the group develops, owns and manages its own assets. CEO Richard Herring told the Financial Mail this integrated model drives its earnings record.
- New income streams. Converting tired residential and office buildings into Cape Town aparthotels lifted that segment’s revenue 33.8% to R147.1 million, with occupancy up from 55.6% to 69.5%.
There are risks to weigh. All of Heriot’s debt is floating and unhedged, and each 25 basis point rate increase costs about R16.5m a year, or 5.1 cents of DPS. The Reserve Bank has already raised rates twice since May 2026. Loan-to-value rose to 41.95% after the Safari buyout, and the shares are thinly traded. Investors should do their own homework or consult an adviser.
Management is guiding for DPS growth of 14% to 18% for the year to June 2027, and that forecast already assumes two 25 basis point rate hikes with no cuts. Three earnings drivers are already locked in: a full year of Safari at 100%, the consolidation of its Katleho asset from July 1 2026, and a full year of trading at its Horizon property. Contractual rental escalations of 6% to 7% should support NOI growth of around 6%.
The pipeline is also full. The R530m Fibonacci development in Mowbray, a Shoprite-anchored student housing scheme with 574 units, is due for completion in November 2027 at a projected starting yield of 13.49%. About R233.7m of non-core disposals, including Mnandi Shopping Centre, should help reduce debt during the year.
Property Flash notes that Heriot offers a rare combination: double-digit dividend growth, a growing NAV and a management team that has repeatedly bought assets for less than they are worth.
This is not intended to be financial advice.
247@propertyflash.co.za
