Listed property. REIT. What’s the difference?
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. ■