Real Estate Investor Magazine South Africa December 14/ January 15

upfront PROPERTY ALERTS The Good ESG Ratings Coverage of South African REITS I nstitutional global investors are increasingly considering the environmental, social and governance (ESG) impacts of their investments, as evidenced by recent growth in Principles for Responsible Investment (PRI) signatories. The United Nations PRI call on investors to incorporate ESG factors into their investment processes. Assets under management by PRI signatories are now approximately US$45 trillion, up from US$4 trillion in 2006. According to Stan Garrun, Executive Director at MSCI in South Africa, “There is a groundswell in South Africa’s institutional investment circles, where large asset managers and pension funds are increasingly seeking more information about ESG issues when making investment decisions.” As part of it’s global coverage of over 260 REITs, MSCI ESG Research provides a rating for 13 South African JSE-listed REITS. For the REITs sector, key ESG issues include green building investment and green leasing at the property portfolio level, and corporate governance and human capital development at the corporate level. South African institutional investors may use the ESG rating to understand and manage ESG-related risks of local REITs. They will also be able to compare South African REITs’ ESG performance with that of REITs in other countries. 8 November 2014 SA Real Estate Investor The Bad Property sector out of time for transformation T ime is running out to adapt the Property Sector Black Economic Empowerment (BEE) Transformation Charter to comply with the DTI’s Revised B-BBEE Act and Codes, now requiring a minimum 40% of target in three areas (ownership, skills development, enterprise and supply development), or a drop in BEE level. If the sector misses the April 2015 deadline, the property charter falls away and the revised DTI BEE codes are automatically adopted, placing the sector under immense pressure to speed up transformation and leaving the listed property sector, scrambling to make up ground, says Marius Muller, CEO of Pareto. “The property charter allows for more gradual implementation of BEE than the revised BEE codes,” explains Muller. For most companies outside the property sector, black ownership must exceed 25%. For most listed companies, 40% of ownership is mandated and 25% black ownership of the remaining 60% shareholding, or 15% black ownership. However, for listed property companies, the level of mandated investment is 70%, so they only need 7.5% black ownership to be transformed. Business outside of the property sector generally have a decade to reach their 15% black ownership targets, whereas listed property companies have 20 years to achieve their 7.5% targets. They Ugl Business rescue a serious risk for property investors T he Companies Act allows companies in financial distress to place themselves under rescue. After that, no legal action can be taken against the company. A business entity registered in terms of the Companies Act 61 of 1973 which can, for example, conclude agreements of sale or leases in its name and a practitioner is appointed to develop a business rescue plan, which creditors vote on. If creditors veto the plan, the company goes into liquidation. However, this poses critical risks for property owners and investors, as landlords - unlike other creditors - cannot prevent a tenant in business rescue from continuing to occupy leased space. “Most other creditors can refuse to provide services to a company in business rescue. However, the law does not give the landlord such rights - and the landlord must allow the tenant to remain in the leased premises during the business rescue process, without any security of being paid its rental and utilities,” says Desiree Nafte, chair of the SAPOA Legal Committee. The ranking of claims means secured creditors (banks), get paid in full, but other creditors, landlords included, have to compromise on remaining claims. Damage claims for future loss of rental is restricted and paid at the dividend pay-out ratio, which is 20 cents on the Rand. www.reimag.co.za

Real Estate Investor Magazine South Africa December 14/ January 15 | Page 10