The Johannesburg Stock Exchange (JSE) has announced the sixth phase of the JSE Simplification Project, which aims to shuffle and simplify the existing Sections of the JSE Requirements (Requirements).

Pursuant to public consultation, the JSE now proposes an entirely rewritten Section 13 on Property Entities.

The JSE invites comments by close of business on Monday, 15 July 2024.

Eighteen definitions have been removed as their meanings have already been explained/ they are redundant or obvious/ they are no longer relevant/ or due to a simplification of applicable requirements.

Certain definitions have been amended. For instance:

• asset managers cannot make decisions for the issuer, as this is the responsibility of the board;
• ‘property’ and ‘property entity’ are to be defined more generically to support the listing of infrastructure REITs; and
• ‘rental revenue’ is to consolidate several other definitions.

On financial information:

• The onerous requirement to produce a forecast and obtain the special reporting accountant’s pro forma sign-off on the adjustment column is considered unnecessary and is to be removed where Section 8 historical financial information is already being presented.
• The obligation to have a special reporting accountant’s report on a forecast is being removed since the auditor accreditation model has been removed. The application of currently applicable auditing standards is high enough and sufficient.
• The obligation to obtain an audit opinion on full ‘carve out accounts’ for a business acquisition is being removed as it is an onerous and unwarranted obligation. The special reporting accountant’s pro forma sign-off provides assurance on the assets and liabilities involving a business acquisition.

On valuation reports:

• The valuation report requirement is to be removed for a new listing and transactions, except for new listing or category 1 transactions (i.e. category 2 transactions are no longer relevant here) where the property does not have 12 months’ rental revenues in terms of arms-length lease agreements, with less than 10% vacancy level. Undeveloped property and owner-occupied properties will still trigger a valuation report requirement.
• A separate summary report will not be required even if a valuation is required. Information previously contained in this will be largely included in the property-specific information disclosures; and a new obligation is being introduced for the board to confirm legal title for a new listing.
• Due to IFRS advances, financial reporting will no longer require valuation reports on a rolling three-year basis.
• The definition of ‘substantial property assets’ is to be amended so that the threshold triggering a valuation report for a non-property entity is to be changed from 25% to 50%. This is also to be limited to an asset test.
• The JSE process around the appointment of independent valuers is to be changed to a clear and detailed criterion for independence.

The threshold for category 2 property transactions is to be increased from 5% to 10%.

On REITs:

• The complexities of the adjustments around the 60% gearing test are to be removed as it does not achieve its purpose and presents practical challenges. The wording has been revised to preserve the 60% threshold while introducing ease of compliance.
• Previously a 24-month waiting period was applicable for a REIT to re-apply for REIT status. Amendments have been proposed to provide incentives to be a good leaver, where the waiting period is less.

A risk-based approach is proposed for tenant information disclosures on the property portfolio as opposed to the JSE defined ‘A’, ‘B’ and ‘C’ categories.

The JSE proposes removing repeated disclosures of relationship information for every circular and to only focus on new relationships/ benefits arising from current relationships.

The distribution obligation is to be added to so that the company will be required to distribute at least 75% ‘in cash’.

Transitional requirements for property entities are no longer relevant and are to be removed.

The JSE proposes removing the guidance letter on fairness opinions for property and expanding the paragraph in the requirements to deal with the principles as this applies to all issuers and not only property entities. It will read as follows: ‘A valuation report can be used for the purposes of a small-related party transaction instead of a fairness opinion provided the subject of the transaction is property and the consideration is cash.’

Several other provisions have been reworded without changing the applicable principles in substance.