Coronation Property Equity Fund

PERFORMANCE AND FUND POSITIONING

Listed property started the third quarter of 2026 (Q3) strongly, building on its Q2 momentum and rerating positively against bonds. However, it ended the quarter marginally lower, tracing bond yields higher.

Global events remain a major force behind much of the current return drivers, ranging from uncertainties relating to the situation in the Middle East to concerns regarding the sustainability of many key economies’ borrowing levels, including the US. On the local front, after a pause in the interest rate hiking cycle, the South African Reserve Bank increased the repo rate by 25 basis points (bps) as concerns regarding inflationary pressure are not abating. As a result, the sector ended Q3 delivering a total return of -1.5%.

Relative to equities and bonds, the sector underperformed both the FTSE/JSE All Share Index (ALSI) and FTSE/JSE All Bond Index (ALBI) over the quarter, but continued to outperform over 12 months (+20.3%) and 36 months (+26.5% p.a.). The sector’s 12-month return is supported by a very strong final quarter of 2025, compared to the year-to-date (YTD) return of 3.1%, taking its lead from both a slower equity and bond market. Momentum in unit trust-linked capital flows into sector-specific funds has turned erratic. Although institutional-linked appetite appears to have returned into a weaker market, demand from index trackers has waned. The FTSE/JSE All Property Index’s (ALPI) one-year forward dividend yield is 7.7%, and that of the Fund is 7.4%.

Delivering a return of -1.5% for Q3, the Fund performed in line with the ALPI benchmark and improved relative performance over longer periods. However, over 12 months the relative performance deteriorated marginally. Two overarching themes drove individual stock returns during the quarter. With overall sector return momentum fading, companies with stronger earnings growth prospects are being credited by market participants. At the same time, against an uncertain return backdrop, locally focused counters that are larger and more liquid are utilised as swing stocks to either enter or exit the sector, resulting in more volatile share prices. Positions that added to the relative performance for the quarter include the overweight positions in Fairvest B, Attacq and Hyprop, as well as underweight positions in Growthpoint, Redefine and SA Corporate. Unfortunately, our relative positioning in Fairvest B, Sirius, Resilient, and Dipula detracted all the value gained. During the quarter, the largest increases in exposure occurred in Resilient and Hyprop. The most noticeable disposals include reducing exposure to NEPI Rockcastle and Lighthouse, driven by relative performance, liquidity management, and benchmark movements.

REPORTING TRENDS, TRADING DATA AND REGULATORY DEVELOPMENTS

The results season for companies with June reporting periods concluded in September. Consistent with the recent trend, SA-centric earnings growth momentum improved year-on-year (y-o-y). Distributable earnings per share (DEPS) grew 2.8% y-o-y, while dividend per share (DPS) growth was 4.0%, with an average payout ratio of 91.9%. This compares to 9.3% and 9.4% growth 12 months ago, with a payout ratio of 86.6%. Notably, SA-centric companies showed much stronger growth, while offshore names underperformed on a relative basis as the rand improved against both the euro and the pound. When the offshore names are excluded from these numbers, the SA-centric names delivered DEPS and DPS growth of 9.3% and 10.8%, respectively, with an average payout ratio of 91.7%. This compares to DEPS growth reported 12 months back of 7.6%.

Companies continue to deploy more expansionary strategies, utilising the existing favourable cost of capital versus direct asset pricing to grow their portfolio footprints. Examples from this past quarter include Dipula and Stor-Age buying locally and Hyprop, NEPI Rockcastle, and Hammerson buying offshore, with Hammerson, Dipula, and Hyprop using scrip placements to part-fund their buying. This expansionary thinking reflects companies’ renewed confidence in balance sheet capacity, underlying portfolio dynamics, and broader investor appetite.

The SA Council of Shopping Centres (SACSC) published retail trading data related to Q2. The weighted average y-o-y growth in trading densities marginally deteriorated to 3.9% (Q2) from 4.3% (Q1). Recent updates from the large SA retailers across most categories have exhibited weakening trends; thus, an overall weakening in shopping centre trading density growth did not come as a surprise. The deterioration was mostly because of weaker growth momentum out of super regional centres compared to Q1 but remains strong at 4.6%. Larger shopping centre formats continue to outperform smaller, more convenient formats where grocers play a larger role, and the impact of lower food inflation on turnover is more acutely felt at a centre level. There is some concern from landlords that grocers are cannibalising trade. Major retail categories that continue to outperform are Health & Beauty, Services and Entertainment. Other noticeable trends are higher foot count (back to pre-Covid levels), while spend per head is lower.

For those also following regulatory news affecting the sector, it is worth noting the approval of legislation for unlisted property companies with 100% institutional ownership (including listed REITs and certain state-owned companies like the PIC). This legislation came into effect on 19 August 2026, with the applicable qualifying requirements being very similar to those of listed REITs, except for additional governance requirements, especially related to risk management and the use of derivatives.

OUTLOOK

As exhibited this past quarter, even against a backdrop of strong operational performance, the sector can’t escape the malaise of current global events, whether economic or political. However, within the sector, company strategy delivery and messaging are providing the key differentiation in individual share price returns and ratings. Following the results of the last 18 months, with most companies delivering inflation-beating earnings growth, and in many cases in the double digits, expectations have been created that this level of growth is likely to persist in the short term.

The recent strong earnings growth reflects a return to solid net operating income growth, driven by an improvement in vacancies, lease renewal reversions normalising towards flat or in-place escalations, and much better cost containment. The latter was mainly due to improved cost recoveries, supported by an increase in solar- and battery-linked electricity provision within portfolios. In turn, the 150bps cut in base interest rates between end-2024 and mid-2026 further boosted earnings growth, with the sector operating on a 36% loan-to-value. These tailwinds are gradually starting to lessen and even turn into headwinds, with interest rate increases being the first lever to turn negative in the growth equation. Market expectations are for a limited immediate impact on curtailing earnings growth momentum, and as was experienced this past quarter, if a company disappoints in earnings growth guidance, the market reaction immediately reflects in share price movement.

As mentioned, sector prospects in the immediate future will largely depend on external factors. The Fund can, however, differentiate itself by focusing on companies where we believe a clear, focused and simple strategy, in conjunction with proactive operational and balance sheet management, is front of mind for management teams, and where current headwinds are balanced with growth-supported opportunities. We believe these are the companies that should outperform in the current uncertain environment.

Insights Disclaimer
Comprehensive Fund Factsheets