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

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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