The Property Charter is a complex document dealing with a myriad of interconnected issues such as equity ownership, management and control, employee equity, procurement, Corporate Social Investment (CSI), and enterprise development, and listed property funds are applying their minds to finding innovative solutions to meet the requirements of the charter.

 
John Rainer, who was party to the negotiations on behalf of the Association of Property Unit Trusts (PUTs), says although the charter is particularly complex for PUTs as some of the regulatory issues and constraints preclude PUTs from absolute compliance with the Charter, there are innovative ways of structuring deals to meet BEE objectives and there have already been successes in the PUT sector.

In 2004, Capital introduced Shanduka as a majority shareholder in the management company, Property Fund Managers. Further, Shanduka also invested in a 10% stake in the portfolio itself, which was the largest deal in the sector at the time.

Emira recently announced a deal, which is still subject to shareholder approval, which will see 14,2% of Emira owned by BEE parties.

“The Association embraces the notion of change, and we are eager to resolve some of the outstanding issues to further participate in economic enfranchisement.

“The requirements for enterprise development and CSI, for example, are prohibited within the legislation governing PUTs, as there can be no expenditure not directly related to the operations of the property investment portfolio. 

“In addition PUTs typically employ no staff, so the employment equity measures cannot be applied to them. These issues have been considered by the Steering Committee which has agreed to recommend to the Property Council, once constituted, that PUTs be exempted from these issues,” he says.

PUTs will need to find clever ways to facilitate the financing of change of ownership.  Most of the BEE deals, across all sectors, have been funded by some degree of direct loan, mezzanine finance or underwriting by the entity itself, but PUT legislation does not allow these funding mechanisms.

“A further concern relates to the issue of indirect ownership,” adds Rainier. “The vast majority of PUT investors, at least upwards of 60% across the sector, comprise Retirement Funding entities or Equity Unit Trusts, and in either case it is not possible to identify the BEE or HDI status of the underlying beneficiary. The DTI’s guideline deems all indirect ownership to be 100% white, and this has a material impact on a PUTs ability to achieve the targeted 25% ownership threshold. By means of example, if 60% of a PUTs shareholder falls into the “all white“ indirect ownership category, the PUT would have to achieve BEE ownership of 62.5% of the remaining shares in order to be compliant.

“We have highlighted these funding and structural constraints in our representations to the DTI, and we have requested that the indirect ownership shareholders be excluded from the calculations.  We are looking at a number of alternatives and are confident that the industry will find creative and workable solutions,” Rainier adds.