Real Estate Investment Trust
Sri Lanka Real Estate Investment Trust (SL-REIT)
The Colombo Stock Exchange (CSE) and the Securities and Exchange Commission of Sri Lanka (SEC) has introduced a framework that enables the creation of Real Estate Investment Trusts (REITs) which provides real estate developers and owners an opportunity to transfer income generating, fully completed properties into a REIT.
The company transferring the property to a REIT will receive funds from the public by issuing units of the REIT. This process and the REIT at large will be created and managed by a Managing Company licensed by the SEC.
REITs now gives average investors an opportunity to reap the benefits of real estate investment and the advantages associated with investing in publicly traded securities on the CSE. While investing in Real Estate appears to be a popular choice, the rising cost of property poses a significant challenge to individual investors who typically resort to bank loans to finance such investments. This timely introduction by the CSE and SEC provides greater access to all investor segments to commercial real estate projects and an opportunity to benefit from the recently observed spiraling property prices.
The government has proposed within the 2021 budget to exempt such investments from capital gains tax and dividends free from income tax. The proposal further seeks to reduce the Stamp Duty applicable to real estate transaction associated with REITs to 0.75 percent (from the currently applicable 4% for property transactions).
The company transferring the property to a REIT will receive funds from the public by issuing units of the REIT. This process and the REIT at large will be created and managed by a Managing Company licensed by the SEC.
REITs now gives average investors an opportunity to reap the benefits of real estate investment and the advantages associated with investing in publicly traded securities on the CSE. While investing in Real Estate appears to be a popular choice, the rising cost of property poses a significant challenge to individual investors who typically resort to bank loans to finance such investments. This timely introduction by the CSE and SEC provides greater access to all investor segments to commercial real estate projects and an opportunity to benefit from the recently observed spiraling property prices.
The government has proposed within the 2021 budget to exempt such investments from capital gains tax and dividends free from income tax. The proposal further seeks to reduce the Stamp Duty applicable to real estate transaction associated with REITs to 0.75 percent (from the currently applicable 4% for property transactions).
BENEFITS OF INVESTING IN A LISTED REIT
Affordability 
Liquidity
Stable income stream 
Exposure to large-scale real estate 
Professional management - Investing in REITs is an affordable alternative as it only cost a fraction of the cost of direct investment in real estate.
- With a high level of liquidity investors now have swift entry and exit routes through the secondary market and also benefit from the returns of the overall real estate asset appreciation.
- A lucrative investment vehicle which would produce a stable income stream through the framework which mandates the distribution of 90% of the generated income to its investors.
- An investor can derive the benefits of owning a large real estate on a pro-rated basis through a REIT
- An investor would benefit from having the REIT and its underlying assets managed by professionals
Are you a Property owner?
According to the introduced framework, fully completed and fully or partially occupied properties that are generating an income are considered to be eligible for REITs. Residential Properties, Commercial Buildings, Warehouses, Hospitals, Hotels & Resorts and other forms of income generating infrastructure projects (power generation projects etc.) are examples of the types of properties that could be eligible for REITs. It is essential that such properties are income generating, as such income will form the vital component of the return that will be distributed to unit holders of the REIT. Companies or an individual will have the ability to transfer properties to a REIT via either a sale of the property or by leasing the property to the REIT. This newly introduced framework would benefit property owners and developers, especially as a means of unlocking substantial capital committed to real estate assets, which through a REIT, can now more effectively be deployed in other development projects.
Key Stakeholders of a REIT
Sponsor An Individual or a Company who owns the property which is to be transferred into the REIT through the Managing Company
Trustee A bank licensed by the Central Bank of Sri Lanka and appointed with the prior approval of the SEC, with a Fiduciary duty to hold the assets.
Managing Company Perform duties in accordance with applicable Rules and Trust Deed and will oversee the Property Manager, Compliance Officer, Construction Contractor and any other Designated Persons.
Property Manager The property manager would be required to Maintain the asset in a marketable condition.
Requirements to Create a REIT
To be eligible for listing units of a REIT the REIT shall meet the following requirements:
- The REIT is mandatorily required to be managed by a Managing Company licensed for the particular REIT by the SEC in terms of the SEC Rules on REITs.
- The listing application shall be submitted within one month of obtaining approval from the SEC
- The listing should be for all the units issued pursuant to a REIT.
- The units shall be fully paid, free from all lien and freely transferable.
- The value of the real estate assets owned by the REIT at the time of listing shall not be less than Rs. Five Hundred Million (500 Mn).
- 20% of the units issued by the REIT shall be held by a minimum of 100 public unit holders on the date of listing.
- The Sponsor/Strategic Investor must hold a minimum of 30% of the total units, which will be locked-in for a period of 06 months from the date of listing and the lock-in period applicable thereafter shall be as per the SEC Rules on REITs. (Click here to view SEC Rules)
- The Trust Deed shall include the provisions set out in Section 6 of the Listing Rules of the Exchange (as applicable).
Section 6 Extract: TRANSFER AND RESISTRATION OF UNITS Notwithstanding any provision in this Trust Deed suggesting the contrary, unit of a Fund listed on the Colombo Stock Exchange shall be freely transferable and registration of the transfer of such units shall not be subject to any restriction, save and expect to the extent required for compliance with statutory requirements.
- Shall have a registrar to attend to registration
COST OF LISTING
The Initial Listing Fee
- The initial listing fee payable by the Managing Company in respect of units of a REIT listed on the Exchange shall be Rs. 100,000/-. The initial listing fee will be waved off for application received within the first 18 months of the rules being published. (11th September 2020)
The Annual Listing Fee
- When the units of a REIT are listed on the Exchange the annual listing fee payable by the Managing Company to the Exchange on or before the 15th day of February in each calendar year shall be Rs. 100,000/- (Listing fee for the initial year will be pro-rated based on the approval)
The Listing Fee For Further Issue And Listing Of Units
- The listing fee payable by the Managing Company to the Exchange for further issue and listing of units of a REIT on the Exchange shall be Rs. 50,000/-.
Ms. Punyamali Saparamadu
Senior Vice President – Commercial
Tel: +94 112 356 402 / +94 77 051 8615
Email: punyamali@cse.lk