‘Infrastructure is an enormous economic multiplier, providing dividends for an economy long after the infrastructure has been built,’ President Cyril Ramaphosa said at the March 2024 Sustainable Infrastructure Development Symposium of South Africa in Cape Town. ‘It is estimated that to achieve our infrastructure goals, we need an additional R1.6 trillion in public sector infrastructure investment and a further R3.2 trillion from the private sector by 2030.’

SA urgently needs more infrastructure and the JSE is exploring ways to contribute to this need. ‘Infrastructure REITs focus on owning and operating income-generating infrastructure assets, such as toll roads, airports, ports, power plants and communication resources, such as data centres and cellphone towers,’ says Patrycja Kula-Verster, Primary Markets Business Development Manager of the JSE.

‘By including infrastructure REITs onto the exchange, we can expand our offering beyond traditional sectors like financial services, mining and consumer goods. This broader sector diversification allows investors to access opportunities in the infrastructure sector, which has different risk-return characteristics compared to other sectors.

‘Given that infrastructure assets typically generate stable and predictable cash flows through long-term contracts or regulated pricing structures, infrastructure REITs on the JSE will provide investors with access to these stable income infrastructure streams, which can be particularly attractive in times of market volatility or economic uncertainty.’

Kula-Verster says infrastructure REITs will contribute to the development of infrastructure projects in SA. The JSE can attract capital from local and international investors, which can be used to fund critical infrastructure projects. This, in turn, can support economic growth, job creation and improve the overall infrastructure landscape of the country.

‘Infrastructure REITs have gained interest from among both institutional and retail investors seeking income-generating assets with long-term growth potential. The attractive dividend yields, inflation protection and portfolio diversification benefits have contributed to the increased investor interest in this sector.

‘Globally the market is still growing but thus far there are currently five infrastructure REITs listed in the US. In the Far East, infrastructure REITs are called C-REITs. The assets adopt long-term asset management strategies, and this product range is still developing with only a small number of issuers.’ There are currently 30 REITs listed on the JSE, says Kula-Verster. The activities of these REITs are focused in office, retail, industrial, residential and storage.

‘With the recent introduction of infrastructure REITs, the JSE wishes to expand the types of REITs listed on its market beyond the traditional exposure and include infrastructure REIT issuers to the investment universe. Similar to property, infrastructure REITs have a tax-neutral structure that is eligible to not get capital gains tax on disposal of assets, and investors get a steady flow of dividends. The REIT usually pays little or no income tax and the shareholder will instead pay income tax on the distributions received from the REIT.’

‘This has inherent benefits for companies and shareholders as the investors get a steady return thought the distributions, similar to a dividend and the issuers have a neutral tax legal entity.’ She adds that the regulatory frameworks are already in place to support the establishment and growth of infrastructure REITs locally. ‘We currently have a well-established REIT framework in place. Infrastructure REITs would fall within the same REIT regulation but more broadly focused on qualifying assets; importantly, these assets need to be classified as immovable assets.’

Kula-Verster sees infrastructure REITs playing an important role in the broader SA property investment mix.

‘Infrastructure REITs represent a different asset class compared to traditional stocks and bonds. By including infrastructure REITs in the JSE, investors can have exposure to a new type of investment that is not directly correlated with other asset classes.’ Kula-Verster says the exchange is engaging directly with potential issuers around the benefits for investing in local infrastructure REITs.

By Patrick Farrell
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