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In simple terms a Reit is a company that owns a portfolio of properties.
Johannesburg - Three industry experts discuss with Fin24 the basics of real-estate investment trust’s, better known as Reits, for investors with an eye on the property market.
What is a Reit?
Vukile Property Fund CEO Laurence Rapp says a Reit stands for a real-estate investment trust. It is a mechanism through which investors can access the physical property market without the hassles and costs of buying direct physical property.
Reits are companies, effectively listed on the Johannesburg Stock Exchange.
The business model of a Reit is fairly simple. We own a portfolio of properties. These could be shopping centres, industrial parks, office buildings, residential units, and collectively these generate rental income. Off that we pay expenses and these include rates and taxes, electricity, repairs and maintenance etc.
You are then left with a net property income amount. Off that you deduct the amount that it cost you to fund those assets. From a debt point of view, generally the Reit sector has approximately 35% debt and the balance is made up of equity.
Once you have subtracted the interest payments, you are left with a net property income amount. The figure is then distributed almost in its entirety to investors. Therefore, you as the original investor in a Reit, effectively shares in 100% of the net rental income that is generated off a property after having taken into account the financing costs.
This gives investors access to stakes in some of South Africa's most iconic properties on a liquid easily tradeable basis with very minimal transaction costs.
Can everyone invest in Reit's and is it easy and safe?
Not every investor can invest in a mega-mall; for example the Waterfront Sandton City, but through listed property such as Reits, one would have the opportunity to be able to get exposure to these wonderful assets, says Arrowhead Properties COO Mark Kaplan.
What one can do is to purchase these on the stock market, through online share trading or a broker. Further to that, it is very difficult to purchase a physical property. It is time consuming and the costs are very high. With listed property it is much easier to invest in them, it is safer to invest in them and the time and the liquidity that comes with the stock is much more favourable.
Watch:
Essentially, investors put their money behind a management team that has the know-how to manage a portfolio of this size and what it brings is exposure to multiple assets rather than one individual asset. This also reduces the investor’s risk.
One also gets gearing. These funds are generally geared around 30% to 35% so the gearing is low and conservative, yet one is buying into a system where gearing is in place.
What do I need to know about investing in and trading in Reits?
If you are investing in a listed Reit, you are generally looking at probably an 8% growth on your distribution. Your return is then based on a yield of the purchase price, says Fortress Income Fund CEO Mark Stevens.
These are listed on the JSE where you can get an idea as to what the yield is on a day-to-day basis by simply going to the print or to the websites of the various financial institutions.
So when you look at the shares, you will get an idea of what you can buy these shares at and that will be your distribution yield.
At the moment, the yields range anywhere between 6% and 10% and in the growth of that distribution, the average is about 8% at the moment.
In addition to that, as an investor you can also look forward to some form of capital growth on the value of the shares.
The big difference between investing in a Reit as opposed to any other investment, is that the Reits are easily tradeable. Your stock broker will trade them for you; or you trade them through your various stock broking websites.
However, it gives investors an opportunity to get out of their investments quick and easy, whereas with direct investments, generally the capacity to get out of the long-term property investment is just that - it is long term. So that is really an advantage for the day-to-day investor.
- Fin24
Have you found ways to bring value to your property? Or just have something on your mind about property? Add your voice to Fin24's Property Issue:
* Write a guest post
* Share a personal story
* Ask the experts
What is a Reit?
Vukile Property Fund CEO Laurence Rapp says a Reit stands for a real-estate investment trust. It is a mechanism through which investors can access the physical property market without the hassles and costs of buying direct physical property.
Reits are companies, effectively listed on the Johannesburg Stock Exchange.
The business model of a Reit is fairly simple. We own a portfolio of properties. These could be shopping centres, industrial parks, office buildings, residential units, and collectively these generate rental income. Off that we pay expenses and these include rates and taxes, electricity, repairs and maintenance etc.
You are then left with a net property income amount. Off that you deduct the amount that it cost you to fund those assets. From a debt point of view, generally the Reit sector has approximately 35% debt and the balance is made up of equity.
Once you have subtracted the interest payments, you are left with a net property income amount. The figure is then distributed almost in its entirety to investors. Therefore, you as the original investor in a Reit, effectively shares in 100% of the net rental income that is generated off a property after having taken into account the financing costs.
This gives investors access to stakes in some of South Africa's most iconic properties on a liquid easily tradeable basis with very minimal transaction costs.
Can everyone invest in Reit's and is it easy and safe?
Not every investor can invest in a mega-mall; for example the Waterfront Sandton City, but through listed property such as Reits, one would have the opportunity to be able to get exposure to these wonderful assets, says Arrowhead Properties COO Mark Kaplan.
What one can do is to purchase these on the stock market, through online share trading or a broker. Further to that, it is very difficult to purchase a physical property. It is time consuming and the costs are very high. With listed property it is much easier to invest in them, it is safer to invest in them and the time and the liquidity that comes with the stock is much more favourable.
Watch:
Essentially, investors put their money behind a management team that has the know-how to manage a portfolio of this size and what it brings is exposure to multiple assets rather than one individual asset. This also reduces the investor’s risk.
One also gets gearing. These funds are generally geared around 30% to 35% so the gearing is low and conservative, yet one is buying into a system where gearing is in place.
What do I need to know about investing in and trading in Reits?
If you are investing in a listed Reit, you are generally looking at probably an 8% growth on your distribution. Your return is then based on a yield of the purchase price, says Fortress Income Fund CEO Mark Stevens.
These are listed on the JSE where you can get an idea as to what the yield is on a day-to-day basis by simply going to the print or to the websites of the various financial institutions.
So when you look at the shares, you will get an idea of what you can buy these shares at and that will be your distribution yield.
At the moment, the yields range anywhere between 6% and 10% and in the growth of that distribution, the average is about 8% at the moment.
In addition to that, as an investor you can also look forward to some form of capital growth on the value of the shares.
The big difference between investing in a Reit as opposed to any other investment, is that the Reits are easily tradeable. Your stock broker will trade them for you; or you trade them through your various stock broking websites.
However, it gives investors an opportunity to get out of their investments quick and easy, whereas with direct investments, generally the capacity to get out of the long-term property investment is just that - it is long term. So that is really an advantage for the day-to-day investor.
- Fin24
Have you found ways to bring value to your property? Or just have something on your mind about property? Add your voice to Fin24's Property Issue:
* Write a guest post
* Share a personal story
* Ask the experts
