Moneyweb Property Mogul Issue 2 | Page 16

SA REITS ON THE GLOBAL STAGE Local property counters to be assessed on environmental, social and governance impacts. J SE-listed real estate investment trusts (REITs) will be subject to more international scrutiny, as REITs have been included in US-based MSCI’s rating on environmental sustainability, social and governance (ESG). South Africa’s REITs join the ranks of over 5 000 publicly traded companies in the world which are profiled on an ESG rating tool. The inclusion in the rating is part of MSCI’s efforts to shed light on how risks and opportunities are managed based on industry specific issues. MSCI is a provider of equity, fixed income and hedge fund indexes. MSCI, which is listed on the New York Stock Exchange says the key issues for REITs include green building investments and green leasing at a property portfolio level, corporate governance and human capital deployment at a corporate level. The JSE has close to 50 property companies listed, of which 31 have a REIT status and will likely be under the spotlight. “South African institutional investors may use the ESG rating to understand and mange ESG-related risks of local REITs. 16 PROPERTY MOGUL ISSUE 2 – NOVEMBER 2014 They will also be able to compare South African REITs’ ESG performance with that of REITs in other countries,” MSCI says. Furthermore, the inclusion will enable an understanding of local REITs, which will enable the inflow of foreign capital, says chairman of the SA REIT Association Laurence Rapp. “If we further attract international investors that will also drive down the cost of capital.” South African property companies made their international debut in 2013 by adopting the REIT structure to be in line with international best practice. The REIT structure gives local players an opportunity to compete in offshore markets, as some listed property companies say South Africa has limited opportunities in terms of quality assets. This has forced companies to forge ahead with their African and offshore strategies. The REIT structure has various tax benefits, as companies are exempt from capital gains tax when property is sold. REITs replace property loan stocks and property unit trust structures, which many found confusing, with complicated tax structures. Investors also have a secured income By Ray Mahlaka stream, as REITs typically pay out at least 75% of their income as dividends to shareholders. The world has taken stock of the REIT dispensation. Some of the countries following the REIT structure include Ghana, Nigeria, Australia Singapore, Germany and Hong Kong. MSCI says institutional investors around the world are considering the environmental, social and governance impact of their investments. This view has been supported by the growth in the United Nations Principles for Responsible Investment (PRI), which has made the call for more responsibility in investment processes. PRI manages assets to the tune of $45 trillion, compared with $4 tri