The asset class that delivers capital appreciation and annuity income

CONTACT SA REIT

WEB: www.sareit.co.za

EMAIL: sareit@marketingconcepts.co.za

TEL: +27 11 783 2201

TWITTEr: @SA_REIT

SA REIT ASSOCIATION

The SA REIT Association is a representative

umbrella body comprised of voluntary members

of all the listed SA REIT Companies and Trusts.

This association is modelled on NAREIT (National

Association of Real Estate Investment Trusts) in

the United States and EPRA (European Public

Real Estate Association) in Europe. SA REIT was

established in 2013, to represent the interests of

the sector.

WHAT IS A REIT

The Real Estate Investment Trust – REIT

(pronounced ‘reet’) – structure is an international

standard for property investment, where a tax

dispensation ensures flow through of net property

income after expenses and interest. More than 25

countries in the world use a similar REIT model

including the US, Australia, Belgium, France, Hong

Kong, Japan, Singapore and the UK. Regulations

and tax laws vary marginally from jurisdiction to

jurisdiction. In some jurisdictions capital gains tax is

also waved for REITs.

SA REIT ASSOCIATION MISSION

To promote SA REITs as an investment class and to

represent the industry in meeting challenges within

the sector.

The REIT structure is an international standard as property investment globalises.

TYPES OF SA REITs:

All SA REITs own income-producing property. Prior to SA REIT legislation there were historically two

forms of listed property investment entities in South Africa: property loan stocks companies (PLSs) and

property unit trusts (PUTs). Both were able to adopt the REIT regulatory framework set out by the

Johannesburg Stock Exchange (JSE).

The structure is flexible and allows SA REITs to be managed internally or externally, and caters for different

equity structures that may exist, such as A- and B- linked units that have different rights that existed in some

property loan stock companies.

A South African REIT – SA REIT (pronounced

‘essay reet’) – is a listed property investment

vehicle that is similar to internationally recognised

REIT structures from around the world. Listed

Company REITs or Trust REITs are publically

traded on the JSE REIT board and qualify for the

REIT tax dispensation.

A JSE-listed SA rEIT must:

• own at least R300 million of property

• keep its debt below 60% of its gross asset value

• earn 75% of its income from rental or from

property owned or investment income from

indirect property ownership

• have a committee to monitor risk

• not enter into derivative instruments that are not

in the ordinary course of business

• pay at least 75% of its taxable earnings available

for distribution to its investors each year

THE SA REIT:

COMPANY rEIT

• In a Company REIT shareholders are

active participants. They enjoy the full

protection of the Companies Act and

Takeovers Regulations Panel. They can vote

on specific issues in a general meeting.

Shareholders vote for the company to be

a REIT

• The company has the REIT structure

recorded in its memorandum of

incorporation

• Company directors are responsible for its

ongoing compliance with the JSE’s listing

requirements and the Companies Act

• Companies can have external or

internal management and/or property

administration

TrUST rEIT

• An existing PUT will become a SA REIT

upon application to the JSE and after

providing evidence of its compliance with

the JSE Listing Requirements and that it is

registered with the Registrar of Collective

Investment Schemes

• Investors’ interests are protected by a

trust deed and the trustee, whose role it is

to ensure compliance with the Collective

Investment Schemes Control Act and to

safeguard investors’ assets

• The Trust REIT needs to meet all JSE listing

requirements but are not subject to the

Takeovers Regulations

• Trustees report to the Registrar and must

meet all the requirements of the Collective

Investment Schemes Control Act

• Must have an external asset and property

manager in terms of the Collective

Investment Schemes Control Act

Exposure to the best commercial properties in South Africa and, in some instances, offshore.

The South African listed property asset class has outperformed South African cash, equities and bonds over the past 10 years.

SA REITS INVEST IN ALL TYPES OF PROPERTY:

Most SA REITs own several kind of commercial properties like shopping centres, office buildings, factories,

warehouses, hotels, hospitals and even, to a lesser extent, residential properties, in cities and towns across

the country. Some even invest in properties in other countries.

SA REIT PERFORMANCE

• The South African listed property asset class has outperformed South African cash, equities and bonds

over the past 10 years.

• The sector has also outperformed REITs from the developed world over the past 10 years.

• The South African listed property sector has grown significantly over the past 10 years.

• The sector offers high forward yields. According to local analysts, the sector’s average forward yield is

presently just over 6.5% as at May 2013.

• The new SA REIT dispensation should drive continued growth of the listed property sector, with several

new listings expected.

250

200

Mar

ket

Cap

italis

atio

n -

R B

illio

ns

150

100

50

0

2002

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2003

South African Listed Property Sector

Source: INET Bridge

250

184

132117

9485

6246

312014

86

THE BENEFITS OF INVESTING IN SA REITs

• Because of the unique structure of the SA REIT

asset class, there are two ways of beating inflation:

capital investment growth and regular income

distributions that grow.

• By investing in SA REITs you are exposed to the

best commercial properties in South Africa, and in

some instances, offshore.

• SA REITs have equity and bond characteristics. SA

REITs offer investors the best of both worlds. A

reoccurring cash distribution yield like a bond as

well as growth in income like equity.

• Your investment is underpinned by lease

agreements with tenants in property assets.

Importantly, most rentals escalate annually at

around 8% on average in the current market,

creating sustainable growth.

• SA REITs are accessible to many investors and give

everyone the opportunity to invest in income-

producing commercial property. It is the easiest,

quickest and safest way to invest in property.

• The entry cost for a REIT investment is the price of

a single share. Investors can also buy or sell shares in

SA REITs at any time, without the costs and delays

involved with physical property ownership.

• Management of SA REITs are performance-

driven and entrepreneurial. This means they are

driven to get the best sustainable performance

from property assets. Listed property has

outperformed physical property due to

professional focused management. Also, SA REIT

investors don’t have the headache of managing

the properties in which they are invested.

• Because SA REITs earn income from property

lease income that escalates each year, they have

relatively predictable earnings. So you know

what to expect from your investment with

reasonable certainty.

• SA REITs also provide a lower-risk property

investment model because investors are exposed

to a diversified portfolio of properties that are

actively managed by companies which have strict

governance requirements.

• The SA REIT is an effective diversification tool

in an investment portfolio. Correlations with

the broader equity market are low, at around

0.3%, therefore adding SA REITs to an equity

portfolio will enhance return, for the same level

of portfolio volatility.

• SA REITs should be included in a diversified

investment portfolio.

• If you are invested in SA REITs as part of your

retirement annuity or pension, provident and

preservation fund, you will pay no tax on your

capital gains or distributions.

• Playing an important role in the economy, SA

REITs support growth by investing into real

estate for communities.

• They bring good governance, transparency and

accountability to the real estate sector. SA REITs

provide investors with regular statutory reporting

and are subject to strict oversight.

• SA REITs provide liquidity for real estate markets.

HOW SA REITs ARE MANAGED

Company REITs may be internally managed or externally managed. Trust REITs are externally managed.

WHO SHOULD INVEST IN SA REITs

Anyone can invest in a SA REIT entity. Investment in the SA REIT asset class is typically suited for investors

looking for stable growing income returns over the long term. It is a powerful diversification tool in a

diversified investment portfolio and is suitable for local and international:

• Pension and Retirement Funds

• Mutual Funds, Unit Trusts and other collective investment schemes

• Family savings via Trusts or other investment vehicles

• Individuals

• Financial and investment professionals

INVESTING IN A SA REIT

• Investing in a SA REIT may be easier than you think. The JSE says that the minimum investment in a SA

REIT is one share. Depending on the SA REIT, this could then be below R100. Investments can be made

directly in a SA REIT via a securities account (online or using a stockbroker), collective investment

scheme (Unit Trust) or Retirement Annuity that invests in SA REITs. The SA REIT Index can also be your

investment to obtain exposure to the whole sector.

• Shareholders of a SA REIT company won’t pay Securities Transfer Tax (STT) on buying or selling SA REIT

shares. South African investors will receive gross distributions from a SA REIT entity, without the 15%

dividends tax being levied against the distribution. But investors will have to pay tax on the distributions

at their applicable marginal income tax rate when they include it in their taxable income. Foreign

shareholders of SA REITs will be levied a dividend withholding tax from 1 January 2014 – the current

rate is 15% or the applicable double tax agreement rate could apply.

THE HISTORY OF SA REIT

While SA REITs only became a reality on 1 May 2013, the listed property asset class has a rich history

in South Africa. The sector dates back to 1969 and was established to allow individual and institutional

investors to invest in a diversified portfolio of investment grade properties on the same basis as if they had

bought the properties directly.

LISTED REIT MEMBERS

NON-REIT UNLISTED MEMBERS