Globally, real estate investment trusts (Reits) enable investors to invest in large-scale income-producing companies that own commercial real estate.
Historically, Reits have provided high dividends with potential for long-term capital appreciation, making them attractive for investors.
The SA Reit Association (Sareit) was established in 2013, following the introduction of the Reit structure. The organisation is modelled on the National Association of Real Estate Investment Trusts in the US and the European Public Real Estate Association.
In the US, Congress established Reits in 1960 to give investors access to income-producing real estate assets. Today, about 40 countries worldwide have adopted this model to establish their own associations.
Sareit is a listed property industry body which aims to promote the sector as an attractive asset class locally and globally. It also looks at issues affecting the sector without duplicating what the commercial property industry body, SA Property Owners Association, does.
To maintain Reit status, SA-listed property companies are required to pay a minimum of 75% of their taxable earnings available for distribution as a dividend annually within a period of four months after its year-end.
Reits do not incur tax when paying dividends thus allowing earnings to flow through to investors without the company attracting income tax. They provide investors with dividend-based income.
Sareit CEO Joanne Solomon chatted to Business Day about some achievements and future prospects for Sareit.
What did the association achieve in the past decade?
Investors wanted the sector to look at comparable and transparent data in order to understand where everybody fits in, as well as ensure governance was a priority in these companies. The accounting and JSE committee developed a set of best practice recommendations to help property companies produce best-in-class annual financial and non-financial performance reports to provide investors with consistent and reliable disclosures in line with the JSE regulations. Asset allocators have responded positively to this.
What about challenges?
Retail investors invest for the long term and they have high expectations of Reits to pay distributions as they have clients relying on this income. To meet these expectations and continue to operate optimally in a challenging macroeconomic environment, Reits need to grow — and growth is not always bigger. Sustainability of the business to grow is not about being green and transforming the sector to be inclusive of all participants. Reits continually have to find a balance in dealing with these challenges while paying out distributions.
Do investors know enough about Reits?
There is always a need to educate investors. There are so many changes in regulations and operating environments, so investor education is key and an ongoing exercise.
ESG has become more prominent in financial reporting — what is your approach?
We are finalising the development of a Sustainability Disclosure Guide and Framework to assist Reits to align with international best practice in ESG (environmental, social and corporate governance) reporting. With increasing significance placed on sustainability reporting by international and local investors, governments and stakeholders, the guide will serve as a valuable resource for Reits and real estate organisations seeking to enhance their sustainability reporting efforts.
How many members do you have?
We are down to 25 from 30 when the association was established. There have been some delistings and mergers. Though the sector is smaller, we believe the mergers result in quality and well-diversified stocks.
What are you doing to attract property companies to become Reits?
It’s an ongoing debate for companies — the benefits of being listed. Delisting is more of a concern for the Reits concept as it has unexpected consequences such as reducing opportunities for investors to participate in the sector. The JSE is also feeling the pressure from these delistings and in our engagements we appeal to have requirements simplified and unnecessary obstacles removed. The openness of the JSE to consider these issues has shifted considerably and we hope this goes a long way.
What is the sector outlook?
Property is a long-term game, and given economic, sectoral and structural challenges, we are focused on getting through the economic cycle. Despite rising municipal rates and taxes, some Reits are starting to report increased demand for property and reduction in portfolio vacancies, especially in Cape Town and Durban. Stable electricity supply remains a challenge though the Reit sector has invested massively in alternative energy sources. We need interest rates to come down, policy certainty and a guaranteed power supply.
What is the focus for the next 10 years?
To work closely with institutional investors to strengthen relationships. Investor committee chair Andrew Wooler, CEO of Burstone Group, formerly Investec Property Fund, will drive initiatives and strategy. The committee seeks to enhance understanding of relevant sector issues while positively influencing the market’s perception of the asset class.
Coming out of the pandemic, one of the projects we undertook for the JSE was to look at global Reit regimes to see where SA is aligned and out of kilter. The idea is to incorporate flexibility without compromising investors on tax treatment for the portion of dividends retained, for example, to help Reits grow and take available opportunities in the market. The next 10 years are largely dependent on external factors. We think the sector will continue to grow and 2023 marks an important landmark in the history of the association.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.