Listed prop­erty. REIT. What’s the dif­fer­ence?

Finweek English Edition - - Cover Story -

Listed prop­erty is a broad term used for all listed prop­erty com­pa­nies re­gard­less of whether they are real es­tate in­vest­ment trusts (REITs) or not.

Scale, liq­uid­ity, good cor­po­rate gov­er­nance and con­ser­va­tive debt lev­els are REIT trade­marks. But the fun­da­men­tal rea­son for their ex­is­tence, to pro­duce in­come, is per­haps what sets them apart.

“A REIT is a com­pany that owns in­come-pro­duc­ing prop­erty. Its main source of in­come should be prop­erty and it typ­i­cally dis­trib­utes most of its pre-tax in­come to in­vestors,” says the SA REIT As­so­ci­a­tion’s Izak Petersen.

Aside from a re­quire­ment to be listed and have a risk mon­i­tor­ing com­mit­tee, SA REITs must own at least R300m of prop­erty. Debt must be kept un­der 60% of gross as­set value and 75% of in­come must be earned from rental or from prop­erty owned or in­di­rectly owned through in­vest­ment.

Sig­nif­i­cantly, SA REITs must pay at least 75% of tax­able earn­ings avail­able for dis­tri­bu­tion to in­vestors each year. A non-REIT is not re­quired to pay div­i­dends.

REITs are a liq­uid in­vest­ment, able to be bought or sold far quicker than phys­i­cal prop­er­ties. It of­fers in­vestors reg­u­lar in­come dis­tri­bu­tions as well as long-term cap­i­tal ap­pre­ci­a­tion. The cherry on top is that REITs also of­fer a tax-ef­fi­cient struc­ture. ■

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