Q: What work does the SA REIT Association (SAREIT) oversee?
A: SAREIT represents all the interests of the REITs (real-estate investment trusts) that are listed in SA, focusing its attention on: the taxation and regulation of REITs, working with National Treasury on tax legislation and the JSE on the applicable REITs regulations; the accounting and JSE committee (which recently completed and published the 2nd edition of the Best Practice Recommendation for reporting by REITs and works with members as well as the JSE on improving transparency and consistency in member reporting); the property sector committee (which actively participates in promotion of transformation of the sector, including the funding of the Property Sector Charter Council); the legal committee (which works on the plethora of new and existing legislation impacting the sector, including dealing with the competition authorities); and the marketing committee (which deals with communication of SAREIT initiatives, and the arranging and hosting of its conference).
Focus is also on promoting investments into REITs. All our committees have specific objectives they have set for the year and work towards achieving these. Until recently, all activities have been managed by representatives for the member REITs. We are also looking to appoint a new CEO for the association this year, which will be a major milestone.
Q: How significant is the country’s REITs investment performance historically?
A: Over the past 15 years, the listed property market has differentiated itself as a distinct asset class from cash, bonds and equity; and over the past decade (to 19 September 2018), SA’s REITs delivered a 11.2% return, according to Sygnia Asset Management – outperforming bonds and cash, making REITs exposure an essential part of every investment portfolio.
Q: How do REITs reflect the state of the economy, or influence economic growth?
A: REITs are a lagging indicator of the state of the economy and, in general, they offer a predictable, annuity-type return at lower risk than equity investments.
Q: Why are listed REITs performing so well despite SA’s current inflation, currency value and low investment sentiment in other asset classes?
A: REITs, that own only SA property, have underperformed over the past couple of years due to the torrid economic conditions in the country. The REITs with international exposure have outperformed due to having exposure to more buoyant markets with strong GDP growth and strengthening currencies, underpinned by strong property fundamentals.
Q: What is the primary value of investing in REIT companies?
A: REITs are the most liquid and tradable way to own property and offer investors exposure to the best-quality property assets. They further offer a more predictable return and pay regular distributions to investors. Via the REIT tax dispensation, double taxation is also eliminated for investors, making it a tax-efficient way to own property. Professional management also provides a dedicated skill set that will enhance returns.
Q: What are the REITs risk tolerances that investors should be considering?
A: Investors should consider the liquidity of the specific REIT share; the quality of the property and underlying tenants; and how much debt the REIT has – this metric is usually expressed as the loan to asset value (LTV) percentage. REITs are required to maintain their LTV below 60% but the general consensus is that the REITs keep their LTV below 40%. Also to be considered are the management team’s track record and the company’s governance structure, transparency and focus on shareholders interests.
Q: How empowered are REITs companies, and why are they so receptive to transformation?
A: SA’s REITs are all measured under the Property Sector Transformation Charter, which in many aspects is more onerous than the dti codes. The Property Sector Charter Council monitors the progress for the sector, with the largest focus being on the listed REITs. Over the past 15 years, the sector has made impressive progress and there are various REITs that have excellent empowerment credentials, including some of the larger REITs. Growthpoint Properties, the largest domestic REIT, currently has a Level 2 BEE rating, and various other REITs have committed to transformation targets publicly. It is fair to say that the REITs have been the biggest catalysts to transformation in the sector.
Q: How do REITs create improved liquidity in real-estate investment?
A: REITs make investments into large, quality property assets, making investment accessible to every South African. They are the most liquid – and certainly the cheapest – way to obtain exposure to property. Investors with small amounts to invest can get exposure to the best-quality property via an investment in a REIT.
The investments into REITs can be made by buying the shares of the various REITs on a local stock exchange via a stockbroking account, or making an investment in a property unit trust or exchange traded fund that acquires REIT shares. The latter has the benefit of a fund manager selecting the stock on the investor’s behalf.