LISTED
The ABCs of REIT
Understanding indirect investments
DUNCAN DOLLMAN
Duncan Dollman is an Audit Partner at Mazars, an international, integrated and independent organisation, specialising in audit, accounting, tax and advisory services across a range of markets and sectors.
I
nvestors interested in diversifying their investment strategies with a property component are often drawn toward direct investment, and for those with sufficient capital and access to a bank loan, this is generally a good option. The other option to consider, however, is a real estate investment trust( REIT), which offers the benefits associated with investment property returns and capital growth, without the investor directly owning the underlying property.
The REIT is usually the preferred option of investors who cannot afford a direct investment or who do not want to own or manage a property. This investment vehicle is offered to investors by JSE regulated companies that own, and operate income-producing properties.
As these entities are traded on the JSE, the price that investors pay is subject to the normal market forces of supply and demand which can translate into capital gains and losses.
An important advantage of REITs is that their size enables investors to diversify their exposure to various classes of property including industrial, office and retail. Many have also invested offshore in order to provide a rand hedge benefit to investors in growth economies.
In addition, investors receive a cash distribution of profits earned by the REIT. Essentially investors receive a share of net investment rental income, which is protected by underlying lease agreements and often have escalation clauses.
In terms of existing JSE legislation at
36 NOVEMBER 2017 SA Real Estate Investor Magazine