Real Estate Investor Magazine South Africa September 2015 | Page 50

COMMERCIAL Innovative Specialist REITs flourish on Global Stock Markets The emergence of Specialist REIT’s are rewarding investors who get in early BY WIM PRINSLOO R eal Estate Investment Trusts (“REITs”) that are specialists in student accommodation, selfstorage, data centres and even prisons have listed their stock on exchanges in recent years. This ongoing innovation of the REIT business model is a huge benefit for those investors willing to venture beyond the status quo of traditional Office, Apartment or Retail properties. Specialist REITs provide investors with the opportunity to earn strong returns while further diversifying their property portfolio. What is a REIT A Real Estate Investment Trust (REIT) is a company that owns or finances income producing real estate. REITS provide their investors with a number of regular income streams as they typically pay out their taxable income as dividends to shareholders (the shareholders then pay income tax on those returns). Though they are based on real estate, REITs are nothing like traditional homeownership. A REIT is much like a specialized mutual fund, as opposed to a traditional homeownership, that may invest in a wide variety of companies that build, own and manage commercial real estate. REITs own more than 40,000 commercial properties in the U.S. REITs offer the investor an opportunity to own small percentage of shopping centers, office 48 SEPTEMBER 2015 SA Real Estate Investor buildings, parking garages, factories and a number of other property types that produce and provide income. By law, REITs must pass 90% of their income through to shareholders, who are liable for taxes on that income. The distributions are taxed as ordinary income, only once, at the shareholder level. This is unlike corporate dividends, which are taxed once at the corporate level and then taxed again to shareholders. Self-Storage REITs Self-Storage is an excellent example of the benefits of investing in Specialist REITs. Over the 5-year period to 31 July 2015, the US Self-Storage sector produced a total return of 22.31% p.a. This splendid return proved much higher than the decent 13.34% p.a. return by the broader US REIT market. Performance of US Self-Storage REITs and the general US REIT market – 5 years to 31 July 2015 (See Image 1) Early entrants into Self-Storage recognised the business model as a long-term play on urbanisation and city densification. Demand for self-storage increases as populations swell and people live in smaller city apartments. A recent development also benefitting selfstorage is online retailing, where smaller retail outlets are using self-storage facilities as storage warehouses. www.reimag.co.za