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Real Estate Investment Trust: Corporate governance will drive investor confidence

The South African real estate investment trust (Reit) sector’s focus on improved corporate governance is expected to support positive sentiment for investment in listed property this year, says real estate analyst Wynand Smit.

He explains that the performance of local Reits in the coming year will be influenced by improving levels of confidence in the listed property sector.

Additionally, he states that the local Reit sector’s positive performance prospects signal “double-digit growth in returns to investors”, which Smit believes should be around the sector’s historical annualised ten-year total return of 14%.

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He further notes that improved confidence levels “will depend on the steps taken by individual companies but, more importantly, steps taken by all stakeholders and relevant industry bodies such as the SA Reit Association.”

Since its inception in 2013, when Reit legislation was introduced in South Africa, the association has prioritized driving transparent, clear and comparable financial reporting for the sector.

The association is currently updating its best practice recommendations (BPRs), which is intended to reduce divergence in reporting implementation among sector counters. The updated BPR will reflect new accounting and regulatory issues, address issues raised by asset managers and integrate changes proposed by key industry stakeholders.

The association has resolved to revise its BPRs with an even more vigorous focus on consistency and transparency in the financial reporting of Reits, says Smit. Pointing out that there is a big focus on sustainable earnings in the sector, Smit says “investors have voiced their preference for clean, sustainable earnings”.

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Transparent reporting ensures that a Reit’s sources of income are clearly stated, Smit adds. The association expects to share its progress with the market in this regard early this year.

Meanwhile, SA Reit Association marketing committee chairperson Andrea Taverna-Turisan believes “the time is right” to take the next step and issue more robust guidance for Reits.

“Our members want investors and stakeholders to be confident in the consistency of reporting from the sector. Overall, the Reit sector has established a record of transparency and trust, and we want to reinforce this in the market. We are putting the sector on the best footing for best practice as it enters 2019,” he said.

Additionally, the statement noted that Catalyst Fund Managers expects 2019 to stand out from the past year as a result of the big focus on improving governance in the sector.

Improved corporate governance, Catalyst’s Mvula Seroto explains, will make Reits a good investment this year.

Besides an improved focus on governance in the sector and its positive performance outlook for this year, factors that market commentators believe will make local Reits appealing investments in the year ahead include the sector’s historically high yields and the good value to be found in the share prices of many Reits.

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