By Duncan Dollman, partner in the Mazars Real Estate Division
The South African listed Real Estate Investment Trust (SAREIT) association has followed international reporting trends by developing its own branded guidelines for measuring the performance of REITs. The SA REIT association is made up of the top locally listed REITs and recently issued their best practice recommendations (SA REIT BPR). Inconsistency in reporting certain key measures, such as the distributable earnings amongst members, has resulted in the proposed second edition of these best practices.
There is international precedent for this development. In the US, one of the metrics used by the Securities and Exchange Commission (SEC) listed REITs is the funds from operations statement, and the European Public Real Estate Association (EPRA) has developed its own copyrighted best practices recommendations for European REITs.
One standard for global REITs is not possible because of the differing reporting frameworks in terms of which listed REITs report their performance. South Africa has adopted the International Financial Reporting Standards (IFRS) framework, and reconciliation of the SA REIT defined metrics back to IFRS is encouraged.
Reporting of non-IFRS performance measures has always been regulated by the Johannesburg Stock Exchange Listing Requirements (JSELR). In the face of increasing use by issuers in trying to communicate industry specific information that would be useful for investors, the JSE has now responded by issuing for comment a new Practice Note 4/2019 which incorporates the International Organisation of Securities Commissions (IOSCO) principles of consistency and transparency.
This will avoid the confusion around the use of the term pro forma when applied to non-IFRS measures and will allow the JSE to prescribe the method and disclosures required when the newly defined performance measures (PM) are reported.
Comparing the performance of REITs has been difficult without analysing the adjustments that each has been making to its IFRS reported results and ratios. Following the SA REIT BPR will result in more transparency and easier comparability.
The SA REIT has further suggested that these measures should be contained in a separate annexure and be reported on by the company auditors. These performance measures will also have to be prepared in terms of the JSE practice note requirements once it has been adopted. The company directors will now also be requested to give a confirmatory statement about compliance with the presentation of PMs.
In addition, the CFO and the chair of the audit committee will be required to sign a declaration relating to the financial reporting procedures adopted to identify PMs, when submitting annual financial statements to the JSE.
The JSE will simultaneously amend its listing requirements to place the responsibility for compliance with the practice note on directors. No implementation date has been proposed for introduction of the JSE practice note which is still in discussion phase, but the SA REIT is proposing that its BPR will be effective for years commencing on or after 1 January 2020.
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