This article aims to provide insight into various key points to consider before launching an initial public offering ("IPO") for real estate investment trusts ("REIT") in Turkey.

1. Procurement of Necessary Business Premises, Equipment and Employees

A REIT must conduct its activities in suitable business premises with the necessary equipment. However, the Communiqué on Real Estate Investment Trusts (Communiqué No. III-48.1, dated May 28, 2013) does not provide in detail requirements as to the features of such "suitable business premises" and the content of the "necessary equipment" requirement. A REIT should also employ qualified employees who are suitable for its activities together with "specialized employees" (ihtisas personeli) who should be qualified to carry out the duties specified in the applicable capital markets legislation and should possess certain licenses in the capital markets field.

It should be noted that if a REIT is a tenant on its business premises, the lease agreement of the premises should be duly annotated and affixed to the title deed, as per Article 26 of the Communiqué on Real Estate Investment Trusts.

2. Establishment of an Appropriate Organization

A REIT should duly establish an appropriate and suitable internal organization to conduct its activities in an effective manner. According to Article 4(5) of the Corporate Governance Communiqué (Communiqué No. II-17.1, dated January 3, 2014), a REIT should also form an audit committee, an early detection of risk committee, a corporate governance committee, a nomination committee and a compensation committee, as may be necessary, and appoint skilled and capable members to those committees.

On the other hand, Article 23 of the Communiqué on Real Estate Investment Trusts sets forth the activities that a REIT is not allowed to engage in, which include real estate construction work, operating hotels, hospitals, shopping malls, supermarkets, commercial warehouses, etc., for commercial purposes, and providing project development services to third parties, among others. Therefore, a REIT must conduct its activities in accordance with these restrictions and limitations, and cease prohibited activities immediately, if any.

3. Appointment of a General Manager

As per Article 18 of the Communiqué on Real Estate Investment Trusts, the general manager employed by a REIT must possess a bachelor's degree from a four-year institution of higher education and at least 5 years of work experience in the fields of infrastructure, law, construction, banking, real estate or financing. Furthermore, in accordance with Article 7 of the Communiqué on Real Estate Investment Trusts, the general manager (i) should be honest and reputable, (ii) should not have any outstanding tax debts, (iii) should not have been convicted of certain crimes, (iv) should not have been banned from capital markets activities, and (v) should not be involved in bankruptcy or liquidation proceedings in an individual capacity or as a shareholder of any company.

4. Fulfillment of Certain Requirements Regarding the Assets in the REIT Portfolio

The Communiqué on Real Estate Investment Trusts stipulates certain requirements and limitations as to the types and features of assets that can be included in a REIT's portfolio. In this respect, REITs should always take into account and comply with such requirements and limitations when they are making investment decisions or disposing of assets in their portfolios. During the public offering process, details of the portfolio are determined through real estate value assessment reports for the Capital Market Board's ("CMB") review.

5. Application to the CMB and Borsa Istanbul

A REIT should apply to the CMB within three (3) months as of the date of its incorporation or conversion to a REIT from a joint-stock company. This application must be made by using the standard application form of the CMB and by providing all other required documentation and supporting documents (e.g., offering circular, real estate value assessment reports, trade registry gazettes, board of directors' resolutions and declarations/undertakings, etc.) for a public offering of at least 25% of its issued share capital. If a REIT fails to apply to the CMB within the prescribed time period, its application will be denied by the CMB and the "real estate investment trust" status of the entity and its related legal rights (i.e., tax exemptions, etc.) stemming from this status will be terminated. Furthermore, a REIT should also apply to the Borsa Istanbul simultaneously with its CMB application, and an independent lawyer's report and other required documents should be duly prepared for the listing of its shares by Borsa Istanbul.

Finally, a thorough and detailed legal due diligence of the REIT should be conducted for the preparation of the independent lawyer's report.

All information contained in the foregoing documents should be complete, true and accurate, and reflect the current status of the REIT to ensure the successful completion of the IPO.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in June 2018. A link to the full Legal Insight Quarterly may be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.