The real estate investment trust capital structure could be used as a device to attract currently unlisted property funds to the JSE


Many listed property companies in SA have adopted the real estate investment trust (REIT) structure, which is common throughout the world and offers clarity on taxation dispensation. Ideally it will attract more investors from both SA and abroad than the old structures did. Large local institutional investors would also prefer the new, easier-to-follow REIT capital structure.

The JSE counters that adopted the REIT structure did so from late 2013 to mid-2014, but the groundwork to implement the structure had taken years.

The REIT structure replaced the property loan stock and unit trust structures, and established a uniform tax dispensation for the listed property sector. Property unit trusts and loan stocks had created confusion among investors as they had been taxed differently.

REITs pay out at least 75% of their total distributable profits as distributions at regular intervals. In this sense, they provide investors with consistent income returns as a bond would. However, they also offer share-price growth.

Since numerous listed property groups became REITs, they have attracted new investors to the sector; the bigger ones managing to gain foreign institutional investors.

Various large SA funds joined REIT indices and then index trackers bought stakes them in too, driving up their share prices.

The JSE appreciates that property funds have become a viable option for an array of investors across SA, including institutional investors.

According to the JSE’s Business Development Manager in Capital Markets Patrycja Kula-Verster: ‘REITs are an investment that can help investors achieve better return volatility outcomes.

‘Pension funds and insurance companies have long valued real estate investment for its steady income and potential for capital gain.

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‘If REIT status were extended, unlisted REITS could fall under the authority of the Financial Services Board’


‘Since the inception, we have had more listings on the JSE. As REITs are listed and their units easily traded, investors can easily take positions in investment property with substantially lower transaction costs than direct investment.

‘As a listed entity, a REIT must meet high standards of corporate governance, financial reporting and disclosure; this gives them credibility with investors,’ she says.

Since the introduction of the REIT structure, there have been nine new listings of REITs – and conversions into REITs – in the JSE’s property sector. Kula-Verster says many property listings have been well supported in the past, and that some of these have been REITs.

‘We have had a number of listings from property companies over the last couple of years and, while there is interest for local and foreign property funds, we would like to see more listings,’ she says.

To date, nine companies have listed this year alone. Three of those are in the property sector: two are REITs and the third is a capital growth-focused fund. In 2014, a total of 24 companies listed on the JSE. Of the eight that are property companies, three are REITs. In the year before that, 13 companies joined the JSE: three are property growth companies and three are REITs.

Chairman of the SA REIT Association marketing committee Mark Stevens says he believes that the REIT dispensation could be rolled out to unlisted property funds in SA, but that this could take years.

The wait should be worth it, he says, as the structure would give a greater degree of credibility to unlisted property funds and syndicates. Checks and other auditory measures would need to be developed for unlisted property funds to become REITs and they would also need a regulator.

Currently, the listed REIT regulator in SA is the JSE. Stevens, however, says that the SA REIT Association has not been approached for support or advice in bringing the REIT structure to unlisted property vehicles, and that any process to do so would be at its very early stages.

‘If REIT status were extended, I would think unlisted REITs could fall under the authority of the Financial Services Board,’ he says. ‘It did take four years for listed companies to be able to become REITs, so we cannot expect funds in the unlisted sector to convert to REITs in a few months.’

By Alistair Anderson
Image: Fredrik Brodén/