Transformation from property loan stocks to real estate investment trusts and the resulting influence on international diversification

Abstract

South Africa has made a recent transformation from Property Loan Stock companies and Property Unit Trusts to the internationally recognised Real Estate Investment Trust structures. The locally listed companies that decided to adopt this structure should experience increased global interaction. This study focused primarily on the international direct or indirect real estate investments made from a South African Real Estate Investment Trust perspective. When conducting this investment, the respective companies must obtain financing for the investments, which will have an impact on capital and shareholder structure. The capital structure acts as an umbrella term that includes the shareholder’s equity and debt of a company. The study mainly focused on long-term debt. The shareholder structure focuses on the equity of South African Real Estate Investment Trusts in depth and determines if international activity had taken place. Global investments usually have a structure through which money is transferred to foreign countries to execute an investment. This is predominantly referred to as the company structure. The top 13 Real Estate Investment Trusts, by market capitalisation, were examined to first determine whether international investment took place and secondly whether their company structure experienced change after foreign property investments had been made. Emphasis was placed on the risks involved during the international investment process, the reason for company structure changes, as well as the benefits associated with these decisions. The various direct and indirect impacts that the previous themes have on the bottom line of a specific South African Real Estate Investment Trust were also explored, should these investors choose to capitalise on a global scale.