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Picture: THINKSTOCK

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SA CORPORATE Real Estate Fund CEO Rory Mackey says the company’s growing residential portfolio is set to drive a strong performance this year.

The diversified real estate investment trust (Reit) grew its distributions per share 10.8% in the year to December, having stabilised after being a laggard in the sector for a number of years. Speaking at the release of the results, Mr Mackey said the company’s residential portfolio would excel, despite difficult market and economic conditions.

The company’s portfolio achieved net property income growth of 15.4%. A portfolio tenant retention rate of 89.9% was achieved. Mr Mackey said the Reit was on track to achieve 9% distribution growth for the 2016 financial year.

"Clearly, we foresee pedestrian growth in SA. However, an area for growth for SA Corporate, despite these challenging times, is our residential portfolio," said Mr Mackey.

"First, we are of the view that residential property will prove to be resilient in challenging economic times, given that it is a nondiscretionary spend. Second, demand for rental accommodation is to increase in the increasing interest rate cycle where end-user finance will be restricted and affordability of home ownership comes under pressure. Third the trend of urbanisation continues unabated. Fourth, accretive acquisitions are more achievable in the current market in the residential sector than in more traditional sectors."

Analysts said the results were strong, indicating SA Corporate’s turnaround had been successful. "Importantly, they haven’t had to be creative to deliver 10% growth in distributions. It’s down to the portfolio performing well, as evidenced by the good like-for-like growth. The residential portfolio appears to be making a meaningful contribution to the growth in distributions, but it’s still early days," said Grindrod Asset Management’s chief investment officer, Ian Anderson.

Adrian Jardine, equity analyst at Avior Capital Markets, said the results were "excellent", with the portfolio performance coming in "ahead of expectations". The group’s balance sheet was strong following a rights issue and SA Corporate had debt headroom of about R1bn. This would be sufficient to fund the committed capital expenditure pipeline without needing to raise additional equity.

"They are offering a better forward yield and better near-term growth prospects than large cap diversified property counters, such as Growthpoint and Redefine," Mr Jardine said.