CONTACT SA REIT. The asset class that delivers capital appreciation and annuity income

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1 The asset class that delivers capital appreciation and annuity income CONTACT SA REIT WEB: TEL:

2 SA REIT ASSOCIATION The SA REIT Association is a representative umbrella body comprised of voluntary members of all the listed SA REIT Companies and Trusts. This association is modelled on NAREIT (National Association of Real Estate Investment Trusts) in the United States and EPRA (European Public Real Estate Association) in Europe. SA REIT was established in 2013, to represent the interests of the sector. WHAT IS A REIT The Real Estate Investment Trust REIT (pronounced reet ) structure is an international standard for property investment, where a tax dispensation ensures flow through of net property income after expenses and interest. More than 25 countries in the world use a similar REIT model including the US, Australia, Belgium, France, Hong Kong, Japan, Singapore and the UK. Regulations and tax laws vary marginally from jurisdiction to jurisdiction. In some jurisdictions capital gains tax is also waved for REITs. The REIT structure is an international standard as property investment globalises. SA REIT ASSOCIATION MISSION To promote SA REITs as an investment class and to represent the industry in meeting challenges within the sector.

3 THE SA REIT: A South African REIT SA REIT (pronounced essay reet ) is a listed property investment vehicle that is similar to internationally recognised REIT structures from around the world. Listed Company REITs or Trust REITs are publically traded on the JSE REIT board and qualify for the REIT tax dispensation. A JSE-listed SA REIT must: own at least R300 million of property keep its debt below 60% of its gross asset value earn 75% of its income from rental or from property owned or investment income from indirect property ownership have a committee to monitor risk TYPES OF SA REITs: All SA REITs own income-producing property. Prior to SA REIT legislation there were historically two forms of listed property investment entities in South Africa: property loan stocks companies (PLSs) and property unit trusts (PUTs). Both were able to adopt the REIT regulatory framework set out by the Johannesburg Stock Exchange (JSE). The structure is flexible and allows SA REITs to be managed internally or externally, and caters for different equity structures that may exist, such as A- and B- linked units that have different rights that existed in some property loan stock companies. not enter into derivative instruments that are not in the ordinary course of business pay at least 75% of its taxable earnings available for distribution to its investors each year Exposure to the best commercial properties in South Africa and, in some instances, offshore. COMPANY REIT In a Company REIT shareholders are active participants. They enjoy the full protection of the Companies Act and Takeovers Regulations Panel. They can vote on specific issues in a general meeting. Shareholders vote for the company to be a REIT The company has the REIT structure recorded in its memorandum of incorporation Company directors are responsible for its ongoing compliance with the JSE s listing requirements and the Companies Act Companies can have external or internal management and/or property administration TRUST REIT An existing PUT will become a SA REIT upon application to the JSE and after providing evidence of its compliance with the JSE Listing Requirements and that it is registered with the Registrar of Collective Investment Schemes Investors interests are protected by a trust deed and the trustee, whose role it is to ensure compliance with the Collective Investment Schemes Control Act and to safeguard investors assets The Trust REIT needs to meet all JSE listing requirements but are not subject to the Takeovers Regulations Trustees report to the Registrar and must meet all the requirements of the Collective Investment Schemes Control Act Must have an external asset and property manager in terms of the Collective Investment Schemes Control Act

4 SA REITS INVEST IN ALL TYPES OF PROPERTY: Most SA REITs own several kind of commercial properties like shopping centres, office buildings, factories, warehouses, hotels, hospitals and even, to a lesser extent, residential properties, in cities and towns across the country. Some even invest in properties in other countries. SA REIT PERFORMANCE The South African listed property asset class has outperformed South African cash, equities and bonds over the past 10 years. The sector has also outperformed REITs from the developed world over the past 10 years. The South African listed property sector has grown significantly over the past 10 years. 250 South African Listed Property Sector 250 The South African listed property asset class has outperformed South African cash, equities and bonds over the past 10 years. Market Capitalisation - R Billions Source: INET Bridge The sector offers high forward yields. According to local analysts, the sector s average forward yield is presently just over 6.5% as at May The new SA REIT dispensation should drive continued growth of the listed property sector, with several new listings expected.

5 THE BENEFITS OF INVESTING IN SA REITs Because of the unique structure of the SA REIT asset class, there are two ways of beating inflation: capital investment growth and regular income distributions that grow. By investing in SA REITs you are exposed to the best commercial properties in South Africa, and in some instances, offshore. SA REITs have equity and bond characteristics. SA REITs offer investors the best of both worlds. A reoccurring cash distribution yield like a bond as well as growth in income like equity. Your investment is underpinned by lease agreements with tenants in property assets. Importantly, most rentals escalate annually at around 8% on average in the current market, creating sustainable growth. SA REITs are accessible to many investors and give everyone the opportunity to invest in incomeproducing commercial property. It is the easiest, quickest and safest way to invest in property. The entry cost for a REIT investment is the price of a single share. Investors can also buy or sell shares in SA REITs at any time, without the costs and delays involved with physical property ownership. Management of SA REITs are performancedriven and entrepreneurial. This means they are driven to get the best sustainable performance from property assets. Listed property has outperformed physical property due to professional focused management. Also, SA REIT investors don t have the headache of managing the properties in which they are invested. Because SA REITs earn income from property lease income that escalates each year, they have relatively predictable earnings. So you know what to expect from your investment with reasonable certainty. SA REITs also provide a lower-risk property investment model because investors are exposed to a diversified portfolio of properties that are actively managed by companies which have strict governance requirements. The SA REIT is an effective diversification tool in an investment portfolio. Correlations with the broader equity market are low, at around 0.3%, therefore adding SA REITs to an equity portfolio will enhance return, for the same level of portfolio volatility. SA REITs should be included in a diversified investment portfolio. If you are invested in SA REITs as part of your retirement annuity or pension, provident and preservation fund, you will pay no tax on your capital gains or distributions. Playing an important role in the economy, SA REITs support growth by investing into real estate for communities. They bring good governance, transparency and accountability to the real estate sector. SA REITs provide investors with regular statutory reporting and are subject to strict oversight. SA REITs provide liquidity for real estate markets.

6 HOW SA REITs ARE MANAGED LISTED REIT members Company REITs may be internally managed or externally managed. Trust REITs are externally managed. WHO SHOULD INVEST IN SA REITs Anyone can invest in a SA REIT entity. Investment in the SA REIT asset class is typically suited for investors looking for stable growing income returns over the long term. It is a powerful diversification tool in a diversified investment portfolio and is suitable for local and international: Pension and Retirement Funds Mutual Funds, Unit Trusts and other collective investment schemes Family savings via Trusts or other investment vehicles Individuals Financial and investment professionals INVESTING IN A SA REIT Investing in a SA REIT may be easier than you think. The JSE says that the minimum investment in a SA REIT is one share. Depending on the SA REIT, this could then be below R100. Investments can be made directly in a SA REIT via a securities account (online or using a stockbroker), collective investment scheme (Unit Trust) or Retirement Annuity that invests in SA REITs. The SA REIT Index can also be your investment to obtain exposure to the whole sector. Shareholders of a SA REIT company won t pay Securities Transfer Tax (STT) on buying or selling SA REIT shares. South African investors will receive gross distributions from a SA REIT entity, without the 15% dividends tax being levied against the distribution. But investors will have to pay tax on the distributions at their applicable marginal income tax rate when they include it in their taxable income. Foreign shareholders of SA REITs will be levied a dividend withholding tax from 1 January 2014 the current rate is 15% or the applicable double tax agreement rate could apply. NON-REIT UNLISTED members THE HISTORY OF SA REIT While SA REITs only became a reality on 1 May 2013, the listed property asset class has a rich history in South Africa. The sector dates back to 1969 and was established to allow individual and institutional investors to invest in a diversified portfolio of investment grade properties on the same basis as if they had bought the properties directly.