Shareholder Wealth Effects from the Conversion of Property Listed firms into REITs: Evidence from South Africa

As of 1st of April 2013 the REIT legislation of South Africa was implemented. The South African REIT structure was developed to follow international best practice. The need to convert to a REIT structure in South Africa was driven by a number of problems arising from the management structure, investor accountability, dividend pay-out policies and taxation of Property Loan Stocks and Property Unit Trusts.The South African scenario is an exceptional case, as of the top 9 global REIT markets South Africa, USA, France and the United Kingdom are the only countries that allow for conversion of listed property companies to REIT status. From these countries that allow REIT conversion South Africa is the only country that represents the developing world economies.This research examines the impact of the Implementation and conversion of Property Loan Stock (PLS's) and Property Unitut Trust (PUT's) companies to REITS on shareholder wealth. The paper examines 32 conversion of property listed firms into REITs on the Johannesburg Stock Exchange. The research employs an event study which examines a) the announcement of the introduction of the REIT structure by the Johannesburg Stock Exchange and b) the announcement of individual firms to convert to REITs.This research is important as it will provide information on the impact of legislative changes to the South African Property Stocks industry. The introduction of new legislation changed the regulation of property stocks. The new REIT structure effectively changed the operating requirements of property stocks. It is therefore important to assess the link between the elimination of income tax and the increase of dividend pay-out requirements in relation to the change in shareholder wealth.