I understand that SA property REIT's are negotiating with the regulator to get dispensation from their distribution responsibility "to help them restore their balance sheets" So help me get this story straight. A thread....

First, they negotiated special tax status with the regulator and SARS,which allowed them to create a corporate structure - a REIT - where they could pass through their income to their shareholders, without being taxed. This is a common structure in regulated entities worldwide.

Shareholders loved this, as it had the effect of boosting yields. Even though (some) shareholders would be taxed at a higher level on the income, at personal income rates rather than the corporate rate. Overall, I guess the net tax take of SARS reduced.

Management loved it,as it boosted the share price of the REITS, and the value of their free options went up. A lot. But everyone conveniently forgot you have to retain some income to maintain your properties. If you don't they deteriorate - slowly at first, but then rapidly.

Of course in financial engineering MOAR is always better, so the REITS started taking on more than usual amounts of debt, to boost distributions even more. And retained even less capital. Share prices soared.

By now, property had become a religion. Anyone that didn't "believe" was excommunicated. And the converts were multiplying fast. As management regarded their assets to be bullet proof, they started buying offshore assets by encumbering their local balance sheets even further.

Of course MOAR is better then less, so, to keep interest payments low, the local debt was swapped into offshore debt. No hedging required, as the assets were bullet proof, remember? As a result distributions continued to grow.

And as distributions grew, share prices went ballistic. And, management comp exploded. It was good all round - except for the taxman, who was probably out of pocket on a net basis.

Then escalations started slowing, and it became apparent that debt levels were uncomfortably high. What to do to keep growing. Well. lets just buy each other! With more debt of course.

And then the Rona hit, and the whole pile collapsed. Now management wants to renegotiate their REIT status. "It's not our fault, it's the virus!" is the refrain. This argument ignores their role in piling on the debt in the first place.

In closing, my two cents: Yes, by all means give up your REIT status and rebuild your balance sheet but:
1. Payback the excess comp.
2. Payback the tax deficit.
Then it's all good.
Am I wrong?

Management comp