The average payout ratio of South African Real Estate Investment Trusts (Reits) was 75.6% in 2023 and is expected to reach 78.4% this year. This compares well with the global average payout ratio of Reits, at 76%, says industry organisation the SA REIT Association.

The average payout ratio by South African Reits has declined from 93.5% in 2019 to 75.6% in 2023, it points out.

With Reits lowering their debt levels, strengthening their balance sheets and reporting higher earnings, it is likely that payout ratios could increase from current levels, the association adds.

Financial services firm Nedbank Corporate and Investment Banking (CIB) undertook the research on the payout ratios of JSE-listed Reits in a global context. The research was commissioned by the research committee of the SA REIT Association.

"We forecast an increase in payout ratios over the medium term as current retained earnings are used to reduce debt and strengthen balance sheets, with company earnings benefitting from potentially lower interest rates," says Nedbank CIB senior equity research analyst Ridwaan Loonat.

Reits express their payout ratios as a percentage of distributable earnings. A large portion of the total return of listed property companies is income, which is distributed as dividends.

The JSE requires listed Reits to distribute at least 75% of taxable earnings to shareholders each year.

According to the research, the global average payout ratio is currently 76%, which is slightly lower than its five-year average of 79%.

Distributions in the Asia-Pacific region were less affected by the Covid-19 pandemic compared with South Africa, which saw its payout ratios decline by 18%, and the US, which saw payout ratios decline by 15%. European payout ratios remain below peers, Loonat highlights.

"It is encouraging that the South African payout ratio aligns with global peers. While it is important to consider regional differences in Reit distribution rules and tax systems, this alignment showcases the strength and competitiveness of the South African market," says SA REIT Association chairperson and Growthpoint Properties South African CEO Estienne de Klerk.

Further, the research shows that, in the US and the UK, Reit distribution regulation requires that at least 90% of taxable profits be paid as dividends, while in Belgium the rule is at least 80% of net profits.

In Germany, the distribution rule is 90% of net income, while in France there are three rules, including for 95% of tax-exempt profits from qualifying leasing activities, 70% of the capital gains and 100% of dividends received from subsidiaries that have elected for the Société d'Investissement Immobilier Cotée regime, which gives tax benefits to publicly listed companies.