Despite the economic headwinds that face the economy, our rolled 1-year funds available for distribution (FAD) yield remains attractive at circa 9.71%. It is important to bear in mind that our FAD yield is after allowing for additional capex provisions in our forecasts (circa 10-15% of net operating income), which generally translates into a slightly lower yield relative to the actual dividend paid out by REITs. Distribution growth is forecasted to be in excess of inflation in the short-term due to the low base effects of Covid-19 in the historical numbers and strong growth prospects from some of the offshore names within our universe. The sector continues to trade at a significant discount to NAV with a material dispersion between SA centric companies at a discount to NAV of -33.9% and offshore companies trading at a discount of -18.5%. Although the uncertain macro environment will likely continue to drive elevated volatility in asset prices locally and abroad, we currently see value in the sector with total return expectations of between 12 – 15% per annum over the next 5 years.

Source: Company data, Catalyst Fund Managers, as at 30 June 2022