Page 133 - Profile's Unit Trusts & Collective Investments - September 2025

Understanding asset allocation Chapter 7

REIT Rules
In order to qualify for the REIT tax dispensation, both Trust REITs and Corporate REITs must
comply with the following rules (amongst others):
„ Debt not more than 60% of assets
„ Must obtain at least 75% of income from rentals
„ Must distribute at least 75% of distributable profits to shareholders or unitholders
„ May not use derivative instruments except in the ordinary course of business
The amounts paid by REITs are called distributions. They are taxable as income in the hands of investors.
Note that under CISCA, Trust REITs pay out 100% of distributable profits. A Corporate REIT could choose
to retain up to 25% of distributable profits.
most REITs are not trusts at all, but companies, and most funds in the ASISA Real Estate sector are
unit trusts. We use “UTREFs” in this section to refer to real estate unit trusts, and “REITs” to refer
to JSE-listed property owning companies. (To further confuse matters, there are other JSE listed
property companies, known as Real Estate Development & Services (REDS) companies, which
are neither CISs or REITs – businesses involved in property trading, leasing, or general property
services.)
There are two types of REITs: Corporate REITs (structured as companies), and Trust REITs (also
known as REIT collective investment schemes, or REIT CISs). The latter are both CISCA-registered
and JSE-listed entities. Trust REITs (REIT CISs) were previously known as Property Unit Trusts
(PUTs).
The term REIT is used to denote a particular tax structure in terms of which income and tax
liabilities are passed on to shareholders and unitholders. A property entity that falls under the REIT
tax structure does not pay tax (provided it adheres to the REIT rules), instead tax is paid in the hands
of the unitholders or shareholders (depending on the type of entity).
Almost all of the JSE listings in the Real Estate sector are Corporate REITs and not REIT Trusts.
(Note that the arrangement of JSE sectors does not make it possible to differentiate Trust REITs and
Corporate REITs.) Most Corporate REITs are property-owning entities that were previously known
as property loan stock (PLS) companies.
Nearly all JSE-listed PLS companies now comply with the REIT tax legislation, making them look
very similar, from an investor’s point of view, to listed Trust REITs. They are, however, different legal
entities (ie, companies rather than trusts). The number of Trust REITs has declined over the years
with the advent of Corporate REITs: Capital was acquired by Fortress, Fountainhead was acquired
by Redefine, and SA Corp converted to a Corporate REIT. There is currently only one Trust REIT (or
CIS REIT), the Oasis Crescent Property Fund, listed on Alt-X (the Liberty Two Degrees trust REIT
converted to a Corporate REIT in November 2018). Note that Corporate REITs are not collective
investment schemes.
Due to their structure, REITs offer significantly higher yields than other equities. In general, the
yields of REITs compete with general retail interest rates in the market. Prices of these shares,
however, which are listed on the stock exchange, are subject to demand and supply pressures
and vary each day, and so capital gains or losses have to be taken into account. Also, unlike equity
dividends, the income from REITs is fully taxable (ie, it is treated as interest).
As most UTREFs invest predominantly in listed REITs, the income profiles and tax consequences
of REITs flow through to investors buying open-ended unit trusts.
UTREFs and REITs: How they differ
REITs differ from UTREFs in that REITs are “closed-ended”. This means that the number of shares
remains constant (unless the REIT has a rights issue), and investors can only buy if there are sellers.
UTREFs are open-ended, meaning there is no limit to the number of new units that can be created.
Additional shares in a REIT can only be created with a rights issue. Typically this may be done if the
REIT wishes to acquire additional property, but does not want to use existing funds for this purpose.

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