Com­mon struc­ture gives in­vestors con­fi­dence in Reits

Weekend Argus (Saturday Edition) - - PERSONALFINANCE -

On May 1 this year, South Africa’s listed prop­erty sec­tor was brought into line with in­ter­na­tional stan­dards for listed prop­erty when the JSE launched a real es­tate in­vest­ment trust (Reit) sec­tor.

Reits are listed com­pa­nies that own rental­pro­duc­ing prop­erty and dis­trib­ute rental in­come, in the form of tax­able in­ter­est, to the hold­ers of shares or units.

Esti­enne de Klerk, pres­i­dent of the South African Prop­erty Own­ers’ As­so­ci­a­tion and ex­ec­u­tive di­rec­tor of Growth­point, says that Reits will even­tu­ally re­place listed prop­erty unit trusts (PUTs) and prop­erty loan stock (PLS) com­pa­nies, sim­plify tax­a­tion and en­hance fund gov­er­nance. Growth­point is the largest listed prop­erty com­pany in South Africa.

Reits are listed on some 25 in­ter­na­tional stock ex­changes. They have sim­i­lar rules and struc­tures, giv­ing in­vestors con­fi­dence when they in­vest in prop­erty in a for­eign mar­ket.

Reits are struc­tured so that no in­come tax is payable on rental in­come in the hands of the listed com­pany and no cap­i­tal gains tax is paid on a gain from the sale of prop­erty owned by the com­pany.

Dis­tri­bu­tions, in the form of in­ter­est, are taxed in the hands of share­hold­ers from the first cent – there are no tax ex­emp­tions on in­ter­est or rental earn­ings (ex­cept for re­tire­ment fund in­vestors). This is in line with govern­ment’s move away from tax ex­emp­tions on in­ter­est, which it pro­poses to re­place with tax­in­cen­tivised sav­ings ac­counts for in­di­vid­u­als.

In South Africa, Reits in­vest pre­dom­i­nantly in re­tail, of­fice, in­dus­trial, ho­tel and hos­pi­tal properties; their ex­po­sure to res­i­den­tial prop­erty is limited.

Tower Prop­erty Fund, launched by Spire Prop­erty Group, this week be­came the first prop­erty fund to list on the JSE un­der the Reit struc­ture, join­ing 16 com­pa­nies that listed as ei­ther PUTs or PLS com­pa­nies and have now con­verted to Reits.

The mar­ket cap­i­tal­i­sa­tion (value of all is­sued shares) of the JSE prop­erty sec­tor grew from R61 bil­lion at the end of June 2003 to R328 bil­lion at the end of June 2013.

There are 45 prop­erty com­pa­nies on the JSE, ac­count­ing for 3.8 per­cent of the stock ex­change’s to­tal cap­i­tal­i­sa­tion.

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