REIT valuation and consumer reality

Following on from my previous summary of the state of the domestic listed real estate market (Are REITs gaining attention again?), I intended to write the following observations. evaluation In this field. In fact, several comments asked for it.

I was planning to do this until Daniel King of Merchant West Investments hosted a concise presentation on this detail.You can see the relevant part here On King's X feed. He followed this up with an interview on the MoneywebNOW podcast.

Given that the SA Real Estate Investment Trust (REIT) sector trades at a discount of approximately 30% to net asset value (NAV) and approximately 20% to total assets; I tend to agree with Mr. King. It is highly evaluated. Remember that the trade-off is between buying real estate with a certain yield, which has inherent risk, or buying government bonds that are likely to have a higher yield (which is theoretically safer). please.

So it's a bit boring, but my view and Mr. King's lineup and the listed real estate sector doesn't seem exciting. In my opinion, the sector as a whole doesn't often trade at a deep discount to fair value, but individual counters within the sector are another matter…

listen:
Vukile bullish R1 billion funding
“We are coming out of the dog box” – de Klerkler
Cape Town boasts SA's top-performing office market

The following three in particular stand out to me as potentially offering some value.

• Stor-Age Property REIT (SSS) is entering the self-storage market with a strong management team. internal counter;
• Vukile Property Fund (VKE) owns the entire retail industry with a strong base of regional shopping malls and the majority of assets in Spain.and
• Spearito (SEA) is a REIT that is diverse in its characteristics but concentrated in its geographical location in the Western Cape.

12-month stock prices for Stor-Age, Vukile and Spear

read:
The UK properties of Stor-Age are not the UK properties of Equites
SA listed properties: the highs, the lows and what’s next?
A very “Reited” duo

consumer reality

Comparing the results for Woolworths (WHL) with those for Shoprite Holdings (SHP) shows how the two ends of the domestic consumer market are faring – high LSM and low LSM (Living Standards Scale). Masu.

Woolworths Group's sales increased by 5.1%, which included the Australian business, the winding down of David Jones, currency effects, a decline in the domestic clothing business and the unsecured lending business.

If you remove all of this and focus on Woolworths' food division, like-for-like sales increased by 7.2%.

Inflation was 9.1%. This means same-store sales volume decreased by 1.9% (7.2% – 9.1%) in the six months to December 31, 2023.

Shoprite reported a 13.9% increase in merchandise sales in its comparable first half (H1 2024), which also includes airtime in other segments such as Africa and furniture.

Focusing on Shoprite's domestic business, Supermarkets RSA, like-for-like sales grew by 6.3% (below Woolworths), but inflation was only 7.7% (below Woolworths), so volumes decreased by only 1.4% (6.3% – 7.7%) on a same-store basis.

woolworths and shoprite both Same-store sales decreased in South Africa.

In other words, South African consumers with both high and low LSM unfathomable Pressure to reduce even non-discretionary items.

This cycle not only goes back to my original article on real estate and the valuation view above that REITs currently don't have such an attractive value, but also provides a glimpse into the “broadness” of the pressures in our economy. You can also.

So in this environment and where both ends of the consumer market are struggling, I would be very cautious. any Retailers, especially those offering unsecured credit…

Keith McLachlan is Chief Investment Officer at Integral Asset Management.

* Some portfolios managed by McLachlan may include Stor-Age, Spear, Vukile and Shoprite.