Section 12J - operating assets as an attractive investment

Operating Assets as investments

An operating asset is something that is used by a business (small or medium) and plays an important role in their operations and in turn generating profit.

How does a Fund invest in operating assets:

Funds like Sunstone make investments into companies that own and lease assets to established small to medium sized enterprises, offering them an administratively efficient and cost-effective rental solution to continue growing their businesses.

Examples of the types of assets we invest in are:

  1. Commercial fleet vehicles (bakkies or trucks) which are used by logistics companies or rental agencies (e.g. Avis)
  2. Outdoor media assets – billboards etc which are used by media companies
  3. Ride hail vehicles – Regular passenger vehicles that are rented out to Uber drivers.

The benefits of investing into an operating asset:

  1. Liquidity – these investments are associated with higher levels of liquidity. Liquidity refers to the speed at which an asset can be sold and converted to cash, this means that they have an inherent exit strategy allowing investors a clear line of sight on exit.
  2. Stable yields – Since the businesses that rent our assets sign 18-36 month leases at a fixed monthly rate it allows for an attractive but predictable return profile which is provided more through dividend yield then capital growth.
  3. Security – The assets are not owned by the clients who are renting them, as a result we continue to own the asset throughout their useful life allowing a great deal of security especially due to how liquid they are.

Sunstone targets a rate of return of 18% before withholding tax and 16% after withholdings tax. This attractive return is available to the enhancement given by the full tax deduction. We will be simplifying and unpacking the tax benefit in our next blog post so stay tuned.

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Understanding the Section 12J tax benefits


Avi Gordon
Fund Manager - Sunstone Capital


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