Unlisted funds ‘would benefit’ from REIT status
23 April 2015
Posted by: Author: Alistair Anderson
Author: Alistair Anderson (BDlive)
Investors in South African property syndicates should get some peace of mind if unlisted property funds attain real estate investment trust (REIT) status later this year, Growthpoint Properties MD Estienne de Klerk said on Wednesday.
Unlisted syndicates remain popular in SA despite the failure of some to reward investors.
This is while fund managers have been trying, in recent years, to attract more pension money to the listed property sector, arguing that their funds are regularly audited, carefully managed and provide regular income returns and capital growth.
Finance Minister Nhlanhla Nene said in the national budget in February that the REIT system would soon be introduced for unlisted property companies, as well as syndicates.
Growthpoint Properties is the largest South African-based and listed REIT. Pension investors are among its major shareholders, with the Government Employees Pension Fund owning 11.2% of its units.
"While I encourage investment in REITS, being involved in the management of Growthpoint, I believe there are many credible syndicated property investments that serve their investors well," Mr de Klerk said. A former president of the South African Property Owners Association, Mr de Klerk was closely involved in the establishment of a REIT structure in SA.
"The issue is generally that some unscrupulous promoters sell these investments to uninformed investors. When unlisted property funds, including syndicates, attain REIT status, another level of credibility will be added to these investments," he said.
It was likely unlisted property syndicates would be able to apply to be REITS by the end of this year, he said.
Syndicate property investments essentially involve investors each owning a share of a property or properties. Most unlisted property companies do not use syndicate models but have traditional managerial structures, with the property assets owned by the company and private investors owning shares in the company.
The Reit capital structure is used by global property funds. REITS use an ordinary share structure rather than a complex, linked-unit structure and pay out most of their profits to shareholders.
REITS globally follow a similar tax dispensation. Since the introduction of the system in SA in 2013, the big, listed property funds have joined new REIT-focused indices, which has led to foreign investment in South African REITS.
The South African REIT Association is the representative body in SA. The chairman of the association’s marketing committee, Mark Stevens, said this week he was convinced listed REITS were better investments than syndicates. "I’m still very wary of property syndicates. (They) currently don’t have the same auditing and other risk-preventative measures in place that listed property companies do. REIT status has enhanced the reputation of these listed funds."
Mr Stevens, who is also CEO of JSE-listed Fortress Income Fund, an owner of shopping centres, said the JSE acted as a regulator for listed REITS in SA and that unlisted REITS needed an effective regulator too.
"I believe that controls around listed property funds are very important," Mr Stevens said.
"We provide regular financial reports to our investors and the public. As listed companies, we have boards and management structures that can be held accountable for failing to deliver to investors."
This article first appeared on bdlive.co.za.