In 1960, the US Congress ushered in a new era of property investment options. Real Estate Investment Trusts (REITs) were signed into law by President Dwight D. Eisenhower on the 14 September 1960, and for the first time gave the average investor access to large-scale income-producing real estate.
Ordinary citizens, for the first time, were able to purchase equity in commercially managed property portfolios. In turn, they could now benefit from a proportional share of capital growth on the underlying real estate, as well as enjoy a share of declared distributions.
The creation of REITs effectively brought together the best of real estate investing and share-based investments which had previously only been available to the wealthy, and only via a select group of large financial intermediaries.
Benefits of a REIT structure
57 years on, and the US REIT model has become the template for listed property companies worldwide. A REIT brings added legal certainty, tax benefits at corporation level, debt limitations as well as minimum dividend pay-out requirements. REITs have effectively modernised and standardised listed real estate businesses, while reducing underlying operational risk.
These benefits, in combination with the regulatory requirements of the exchanges themselves, have resulted in an investment vehicle that is transparent, accountable and comparable to other classes of listed equity.
Which countries offer REITs?
Currently, 36 countries around the world have adopted REIT legislation, including South Africa, where since 2013 new REITs have been registered. In addition, many older PUT (Property Unit Trust) and PLS (Property Loan Stock) structures have opted for conversion to the more attractive and modern REIT model.
In all, 16 new jurisdictions around the world have adopted REITs over the last 10 years, and this has helped grow the basket of REIT options substantially.
Soaring popularity of REITs
REITs, particularly since the turn of the century, have soared in popularity, and since 2010, US REITs have increased in market cap by around 147%. Ex US REIT regions have posted noteworthy growth as well, doubling over the same period. The total global market capitalisation currently stands at approximately US$1.7trillion.
The growth of the REIT sector has been nothing short of spectacular and certainly requires that the serious investor take a closer look at the asset class. This is exactly what we will be doing in my posts in the coming weeks and months.
Investment Specialist at Discovery Invest
Mark graduated with a Business Science Degree from the University of Cape Town in 2007. He then joined Sharenet, during which time he also completed his B.Com Honours through UNISA. Mark has helped to build, launch and manage derivative and share trading brokerage businesses. He is also a JSE Registered Securities Trader, and has worked on the trading desk at Sharenet. After seven-and-a-half years at Sharenet Mark then moved to Reitway Global (a specialist Global Listed Property Fund Manager) where his passion for property was further kindled. Mark currently works for Discovery Invest as an Investment Specialist on their Investec Managed fund offering. He has over ten years of experience in the equity and asset management sector and can be reached at: firstname.lastname@example.org
The views and opinions (where expressed) in this article are those of the author and do not necessarily reflect the official policy or position of Discovery Invest.