sri lanka real estate investment trusts
TRANSCRIPT
Real Estate Investment Trust or REIT is a sub category of Unit Trusts, which acts as a Collective Investment Vehicle. REITs pool money from public investors and such money could be used to acquire residential and commercial property, retail or industrial properties, infrastructure or other real estate-related assets.
Investors of the REIT can benefit from income and capital appreciation of such property. This new product will enable the general public to access the benefits from growing real estate
sector, which is otherwise restrictive due to exorbitant prices of property leading to unaffordability.
REIT is a popular alternative investment option in many other countries including in the Asian region and in existence for many
decades. In Sri Lanka, the same is known as ‘SL-REIT’.
SL-REIT is facilitated only as a listed REIT in the Colombo Stock Exchange (CSE) through a licence issued by the Securities and
Exchange Commission of Sri Lanka (SEC).
What is SL-REIT ?
WAREHOUSE
HOTEL
Eligible Properties for SL-REIT
Conditions to be satisfied
Fully completed Fully or partially occupied Generating income
Mode of Acquisition
Outright Purchase Lease
Examples of Types of Properties
Residential Properties Commercial Buildings Warehouses
Hospitals HotelsInfrastructure projects such as
power generation projects
Regulatory Framework� Rules of the SEC - Extraordinary Gazette Notification – No.2186/29 -31st July 2020� CSE Listing Rules
Key Stakeholders of a SL-REIT
Managing Company Trustee Sponsor
WAREHOUSE
HOTEL
REIT Structure
REGULATORY STRUCTURE REIT STRUCTURE ASSETS STRUCTURE
FRAMEWORK
LISTING RULES
APPROVAL
LICENSED
UNIT HOLDERS/ SPONSORS
MANAGING COMPANY
PROPERTY MANAGER
ASSETS CLASS
RENTAL INCOME
GENERATION SL-R
EIT
TRUSTEE
TRUST (REIT)
Benefits to Investing Public
� Increased returns from growing property sector
� Capital appreciation reflected in Unit Price
� Ability to minimize volatility through 90% rental
� Liquidity added to market through listing
� Mandatory valuation to provide transparency
� Capital Gain arising from appreciation of the property value
� Expected to benefit from the Tax Pass through structure presently available to unit trusts
Managing Company
Managing Company oversees:
�Property Manager�Compliance Officer�Construction Contractor�Designated Persons
Eligibility to obtain a licence from the SEC
�Incorporated in Sri Lanka; �Stated Capital - 50% or more of local equity; and �Minimum Shareholders’ Funds of LKR 50 Million
Duties:�Perform duties in accordance with applicable
Rules and Trust Deed
�Ensure validity of title
�Operate according to the Trust Deed
Benefits: �Diversify income portfolio to add REITs.
�Can convert existing UT clients to REIT clients
�Opportunity to increase industry visibility
�Capitalize on shared Overheads
�Increase opportunities for additional Fee Income.
Required Documents to obtain a licence to become a Managing Company
�Explanatory Memorandum – Equivalent to a Prospectus including all the details relating to the offer�Trust Deed�Title Deeds, Survey Plans and other supporting documents
Trustee
Eligibility:� Be a bank licensed by the Central Bank of
Sri Lanka� Appointed with the prior approval of the SEC
Duties:� Fiduciary duty to hold the assets� Shall ensure:§ validity of title deeds or lease agreements§ relevant approvals§ validity of contracts § property registered in the name of the Trustee § valuation, Legal Audit§ Investments, borrowing limitations
Sponsor
An Individual or a Company who owns the property which is to be transferred into the REIT through
the Managing Company
Eligibility:� Be the owner of the property intended to be transferred into the REIT
� Willingness to hold a minimum of 30% of Units of the REIT at the time of issue of units and thereafter
� Will be able to exit upon introduction of a Strategic Investor for such 30%
Property Manager
Eligibility:� Expertise and experience in Real Estate
maintenance
Duties:� Maintain the asset in a marketable condition
Compliance Officer
Eligibility:� Attorney at Law who is a notary public
� Minimum of ten years in the field of Conveyancing
Duties:� Compliance Reviews � Examine irregularities of Managing Company’s operations� Update Compliance Manual� Advising on any matter on Compliance
Construction Contractor
Eligibility:� Local Contractor - Registered with
Construction Industry Development Authority in the highest level for at least five years for building construction category
� Foreign Contractor – possess an equivalent registration from the country of origin
Duties:� Carry out major modifications
Valuer
Eligibility:� Fellow IVSL, RICS or Government Chief
Valuer
� Appointed by Trustee
Duties:� Perform valuations every six months
� Valuation Report to be shared with Trustee, Managing Company, Market via CSE & SEC
Designated Persons Responsible for the Fund
Eligibility:� Minimum five years of senior managerial
experience
� Expertise in Real Estate Investments
Duties:� Real Estate Portfolio Management
Permitted Investments
80% - Real Estates20% - government securities and/or in cash or near cash
The maximum amount to be invested in real estate could exceed 80% with the prior
approval of the SEC
Fees
Front End Fee Annual FeeBenchmark
Performance FeePerformance Fee
Total Fees less than 4% of Total Value of REIT
Borrowings
� Maximum 30% of Net Assets Value of REIT� Via Listed Debentures or Loans� REIT Property cannot be pledged
Types of Audits
� External Audits of Financials� Legal Audits relating to title of Property� Internal Audits
Pricing of Units
� By an Independent Firm of Chartered Accountants at the time of Listing
� By the Market Trading Price subsequent to Listing
Dealing & Suspension of Units
� Dealing & Suspension of units shall be in compliance with applicable Laws and Regulations
� Creation and Cancellation of Units allowed
Public Offers and Listing
� Listing to take place within 3 months of granting of Licence
� Methods of Offering – IPO or Introduction
� No of Unit Holders - 100 at the time of Listing
� Public Float – 20% at the time of Listing
� Minimum of 50 unit holders at all times
� To be eligible to any applicable tax benefits
� Rights Issue of Units are allowed
� Continuous Market Disclosures
Level 28 and 29, East Tower, World Trade Centre, Echelon Square, Colombo 01, Sri Lanka.Telephone : +94 11 2143843, 2143860 (Direct)Fax : +94 11 2439149Email : [email protected] : www.sec.gov.lk