SA Corporate is a JSE-listed Corporate REIT (Real Estate Investment Trust). The Group comprises of the Company and its subsidiaries. Due to its legal structure as a REIT, the Company is required to distribute at least 75% of its distributable earnings as pre-tax net property income to its shareholders. It does this via six monthly distributions in 30 June and 31 December each year, payable in March and September respectively. These earnings are taxable in the hands of the shareholders.
Covenants of the Company
SA Corporate is governed by the provisions of the Companies Act, the JSE Listing requirements and the REIT legislation in terms of the Income Tax Act. In order to receive a REIT status from the JSE, at least 75% of the revenue reflected in the statement of comprehensive income must be derived from rental revenue, total consolidated liabilities may not exceed 60% of the total consolidated assets and the company must distribute at least 75% of its total distributable profits as a distribution to its shareholders. Furthermore, the Company must have a risk committee who is responsible for adopting and implementing an appropriate risk management policy and may not enter into derivative instrument transactions that are not in the ordinary course of business. A number of criteria must also be met in order for the Company to retain its REIT status.
The management company, SA Corporate Real Estate Fund Managers Proprietary Limited (“Manco”), is a subsidiary of SA Corporate. The main objectives of the Manco as set out in the Memorandum of Incorporation, are to manage the winding up of the Fund once all the assets have been disposed of to the Company and to act as asset manager to the company. Manco conducts all the affairs and incurs expenses on behalf of the Company.
The property management function is, for the retail, industrial and commercial portfolio, outsourced to Broll Property Group Proprietary Limited (“Broll”). Afhco Property Management Proprietary Limited performs the property management function for the Afhco portfolio.
The asset management function is undertaken internally, by Manco. All non-Afhco staff are employed by the Manco.
The introduction of REITs aligns the South African-listed property sector with internationally traded real estate investments and facilitates the comparison to, and inclusion in, international indices.
This listing as a REIT on the JSE means that the REIT tax dispensation applies to SA Corporate and this offers the following key advantages:
- The net income of the Company is not subject to tax if all distributable earnings are paid to shareholders.
- The Company and its subsidiaries are no longer liable for capital gains tax (“CGT”) on the profit from the sale of properties.
- South African investors receive gross distributions without dividends tax being withheld. The distributions are regarded as rental income and investors pay tax thereon at their applicable marginal income tax rate.
- Foreign investors will be subject to a dividend withholding tax – the current rate of which is 15%. Alternatively the applicable double tax agreement rate will apply.