REITs, or real estate investment trusts, are companies that own or finance income-producing real estate in a range of property sectors. These companies have to meet certain requirements to qualify as REITs. Most REITs trade on the major stock exchanges and offer various benefits to investors. Over 25 countries worldwide use a similar REIT model to South Africa, including the US, the UK, Australia, Hong Kong and Japan. Most SA REITs own several kinds of commercial properties in SA, such as warehouses, factories, hospitals, shopping centres, office buildings and, to a lesser extent, residential properties. Some also invest in properties overseas. SA has two types of REITs, Company REITs and Trust REITs. Company REITs may be internally or externally managed, while Trust REITs are externally managed.
A JSE-listed SA REIT must inter alia:
- Have gross assets of at least R300 million;
- Earn 75% of its income from rental or from property owned or investment income from indirect property ownership;
- Ensure that the audit committee or a separate risk committee of the board is responsible for adopting and implementing an appropriate risk management policy, monitoring compliance and reporting to the JSE;
- Not enter into derivative instruments that are not in the ordinary course of business; and
- Pay at least 75% of its total distributable profits to its investors by no later than four months after its financial year end.
The SA tax provisions applicable to REITs can be found in section 25BB of the Income Tax Act 58 of 1962 and in insertions in various sections of the Act in 2013. These provision have also been subject to amendments over time.