A. REITs (pronounced REETS) stands for 'Real Estate Investment Trusts'.
These are essentially property companies that are listed on the stock market.
The best way to explain how REITs work for investors are in 6 simple steps.
Step 1: An individual decides to invest in a REIT company.
Step 2: The money is then collected into a large pool (like all trusts).
Step 3: The pooled money is then invested into the property that the company either owns, operates or finances.
Step 4: Over time the company starts to make revenue and profit.
Step 5: The profits are then accounted and collected.
Step 6: The profits are then distributed in parts to the initial investors who helped finance the company through a REIT.
As with the third question. In my opinion I believe REITs will benefit and gain from the Fed's decision to cut interest rates, as now more investors will deposit their money in different REITs knowing that the property companies will be able to finance their debt at lower interest rates.
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Q. "I’m still trying to wrap my head around what kind of REITs us individuals can invest in. Could someone please break them down so I can make a decision?"
A. I'll make your life easy and break the REITs, that you can invest in, down into just three categories.
Category 1: Equity REITs
Most REITs you'll find, fall into this category.
This group of REITs are companies that manage and own income producing real-estate where most of the profits (and revenue) are collected from rent.
You can invest in commercial property companies such as offices, warehouses or shops. Or you can also invest in listed property companies that own townhouses or apartments.
Category 2: Bond REITs (or Mortgage REITs)
This group uses the money funded and lends it to real-estate owners through bonds (or mortgages). The profits distributed are from the interest earned on the loan.
Category 3: Hybrid REITs
This group is simply just a combination of both REITs. The profits distributed are from both revenue received from rent as well as the interest earned from the property loan.
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Q. "Timon I'm looking to invest in the following property trust instruments; PUTs, PLSs or REITs. Can you tell me which instrument I should look into and what the best property companies there are to invest in South Africa?"
A. I wouldn't worry about the – PUTs and PLSs.
PUTs & PLSs or ‘Property Unit Trusts’ and ‘Property Loan Companies’, previously were listed on the JSE stock exchange which have now changed and adapted to REIT Regulatory Frameworks.
This means, you won’t have to even look into the first two, which will save you a lot of time researching.
Probably the most popular REIT companies to invest in, in no particular order are:
7. Emira Property Fund
You can read more about REIT investments from our highly experienced analyst by clicking here...
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