In this article, we will be looking at Real Estate Investment Schemes or Trusts (REIS/REITs) which are Collective Investment/ fund management schemes engaged mainly in investing in income-generating real estate assets or real estate-related assets.

Understanding this topic better will be attempted by the use of a question and answer format. Happy reading!

Question:- Like typical Unit Trust schemes, can Real Estate Investment Trusts be Open-ended or Close-ended?

Answer :- Yes, they can. REITs are simply Unit trust schemes that focus on Real Estate Investments.

Q:- What time range Investment objective is best suited for Real estate Investment Schemes?

A :- Real Estate Investment Schemes are best suited for Intermediate and long-term investment interests in Real Estate.

Q:- Do Real Estate Investment Schemes also come with Unit-based participatory interests as with Unit Trust Schemes?

A :- Yes, they do.

Q :- Under what legal structures can one engage in or issue a Real Estate Investment Unit Scheme?

A :- This can be done either by setting up a company registered by the Corporate Affairs Commission (CAC) and then getting licensed by the SEC as a Real Estate Investment Company (REICO) or as a licensed Fund Manager under the SEC rules you can launch a registered Real Estate Investment Unit Trust (REIT).

Q :- What the minimum required value of an issued Real Estate Investment Trust Fund?

A:- The minimum value of an Initial Public Offering (IPO) Real Estate Investment Trust is 1 Billion Naira. Subsequent offerings come with a minimum value requirement of 500 Million Naira.

Q :- Who actually owns property acquired via a licensed Real Estate Investment Trust?

A :- The SEC rules ( as amended) in Rule 509(1) states that a REIT can wholly acquire and hold legal title to a property or chose to hold equitable title through a Trust deed or other structure acceptable to the Securities and Exchange Commission (SEC) which governs the licensing of Collective Investment Schemes in Nigeria.

What this means is that a Real Estate Company can hold legal title to a property on behalf of the Investor beneficiaries of a Real Estate Investment Trust who hold an equitable title through a Trust deed or the Fund itself can acquire and hold Legal title to property.

Q :- What are the safety measures to be put in place where a Real Estate property is held by a Trust deed or alternate structure acceptable to the SEC?

A :- The following safety measures are required to be put in place in such a situation by Rule 509(2) of the SEC rules –

  • The registration of a caution indicating the interest of the Investment Scheme in the relevant land registry where the property is located; 
  • The fixture of plaques or other notices on the relevant property indicating the interest of the Investment scheme;
  • Depositing the original title documents and other relevant pre-signed documents with the scheme’s Custodian;
  • The provision of such indemnity to the scheme as may be necessary.

Q:- Can a REIT qualify as a security?

A :- Yes it can. A REIT can qualify as asset- backed security or mortgage-backed security.

Q :- Do real life examples of Real Estate Investment Trusts exist in Nigeria?

A :- Yes they do. Notable examples include UPDC Real Estate Investment Trust and Sky Shelter Fund.

Q :- What’s the difference between a REIT and Land Banking?

A :- A Real Estate Investment Trust ( or REIT) involves offering the public participatory interests in a pool of funds geared strictly towards investing in Real Estate Asset Securities for Intermediate or Long term interests.

Land Banking on the other hand is the practice of buying small or large quantities of undeveloped land with the intention of profiting from their resale based on anticipated substantial infrastructural development or population growth in the area which generally leads to Real Estate value appreciation.

Q :- What are the requirements for the registration of a Real Estate Investment Scheme as required under the SEC rules?

A :- The following requirements are :

  • A filled application form SEC 6A;
  • 2 copies of the scheme’s draft prospectus;
  • 2 copies of the scheme’s Trust deed;
  • letters of consent from the prospective parties to the trust;
  • 2 copies each of the Certificate of Incorporation and Memorandum and Articles of Association of the Fund Manager/Investment Company duly certified by the Corporate Affairs Commission;
  • 2 copies of the Certificate of Incorporation and Memorandum/Articles of the scheme’s Trustee duly certified by the Corporate Affairs Commission;
    -2 copies each of the particulars of the particulars of the directors of the scheme’s Fund Manager and Trustee certified by the Corporate Affairs Commission;
  • a sworn undertaking to file evidence of the maintenance of separate trust accounts in a reputable bank;
  • evidence that the minimum paid-up capital of the Fund Manager & Trustee complied with SEC rules and regulations.

Q:- What are the requirements for the registration of units of a Real Estate Investment Trust?

A :- The requirements are as follows :

  1. The name under which the issuer of the units is doing business & the address of its principal office; 
  2. the name of the proposed scheme;
  3. commencement date of the scheme;
  4. the Investment objective of the scheme;
  5. investment outlets of the scheme;
  6. the number of units proposed for issue;

7 the nominal value per unit;

  1. the names & addresses of the directors or persons performing similar functions, the Chief Executive Officer and the Chief Accountant; 
  2. the names and addresses of brokers to the scheme;
  3. the names and addresses of all persons owning 5% and above of any class of shares of the issuer both on record & beneficially as at the date of filing the application for registration of the trust scheme;
  4. the amount of the proposed units of the issue to which any person specified in 8,9 and 10 has indicated an intention to buy or subscribe;
  5. the general nature of the business transacted or to be transacted by the manager;
  6. a sworn undertaking to file quarterly reports with the commission;
  7. any other information required by the SEC from time to time.

Q :- When is a REIT a better funding option than a mortgage?

A:- A REIT is a better option for co-owning comparatively heavy Real Estate assets like apartment complexes, warehouses , commercial buildings, massive residential schemes,shopping malls, hotels , office complexes or Real Estate-related assets like Mortgage-backed securities sold by Mortgage banks and for ensuring constant profits over a longer period of time.

Mortgages, Venture Capitalist financing, or Real Estate Joint ventures are a better option for developing relatively smaller land developments for the purpose of excision applications and relatively quick development and sales/rental objectives.

It is hoped that a better understanding of how REITs work and when they should be accessed has been gained by the article which can be used to make better-informed investment and finance-sourcing decisions.

Source : Tekedia