Turkey: Real Estate Investment Trusts in Turkey

Following the American lead and the development of Real Estate Investment Trusts ("Gayrimenkul Yatirim Ortakligi") ("REITs") in certain other countries, particularly in Europe, Turkey adopted regulations, permitting the establishment of specialized REITs.

Real Estate Investment Trusts are regulated mainly by the Communiqué of the Capital Markets Board (the "Board") named as Communiqué regarding the Real Estate Investment Trusts (Gayrimenkul Yatirim Ortakliklarina Iliskin Esaslar Tebligi) (No. 11, Serial. VI) dated November 8, 1998 ("Communiqué").

REITs are capital market institutions that (a) can invest in real estates, capital market instruments based on real estates, real estate projects and rights (b) can establish ordinary partnerships to undertake certain projects and undertake other activities permitted. REITs in Turkey are considered to be equivalent in many ways to portfolio management companies and are therefore subject to certain similar requirements as to the experience and qualifications of directors, capacity of the company's office equipment.

REITs can be established as a new joint stock company or by converting the existing joint stock company by modifying the Articles of Association in accordance with the regulations of the Board. The establishment of REITs is subject to the approval of the Board and permission of Ministry of Industry and Commerce.

There are currently fourteen (14) REITs which have obtained the permission of establishment and fifteen (15) REITs which have been offered to the public1. The value of their collective assets as of March 31, 2010, is TL4,730,365,000 (approximately US$3,089,000,000)2.

Legal Form and Share Capital

REITs can be either formed at the beginning as REITs ("Establishment") or converted into a REIT from an existing joint stock company ("Conversion"). Whether initially formed as a REIT or transformed into a REIT later, registration as a REIT requires the approval of the Board and permission of Ministry of Industry and Commerce.

REITs must be joint stock companies with a share capital of not less than TL20,000,000 (approximately US$12,666,000) for the year 2010. A certain part of the initial capital is required to be issued in return for cash contributions:

  1. at least 10% of the shares, where the capital is less than TL50,000,000 (approximately US$31,665,000) or
  2. a certain percentage of the shares with the value not less than TL5,000,000 (approximately US$3,166,000) where the capital is TL50,000,000 or higher.

The company name of a REIT must contain phrase of "Gayrimenkul Yatirim Ortakligi" (Real Estate Investment Trust).

A shareholder or a group of shareholders of a REIT must be the leader entrepreneur which must have at least 20% of the REIT's capital alone or together ("Leader Entrepreneur"). New shares acquired after public offering of the REIT's shares shall not be taken into account within this context. The individual or legal entity, whose name and title has been used in the trade name of a REIT or, individual or legal entity, whose connection with the company is, even indirectly, indicated in the trade name of the REIT must be the Leader Entrepreneur.

In order to ease the Establishment and Conversion procedure of REITs, the number of Leader Entrepreneurs is aimed to be increased by the latest amendments on the Communiqué (published in Official Gazette dated December 31,2009 numbered 27449) by removing certain requirements for a Leader Entrepreneur, such as having at least three (3) years of experience in sectors such as law, construction, banking and finance which are in close connection with the subject of REITs. The provision, which states that dealing with purchase and sale of real estates cannot be alone deemed as the experience required by law in the subject of REITs, has been removed as well.

Shares of REITs can be registered to both the name or the bearer, providing that (a) shares representing the capital in kind should be registered to the name and (b) all of the publicly traded shares should be the same kind.

Shares registered to the name cannot be restricted. However, any transfer of the shares before the public offer is subject to the approval of the Board.

It is prohibited to issue privileged shares other then the privilege at the nomination of members of the Board of Directors. However, any other kind of privilege is not allowed after the public offer.

Capital market instruments and documents representing them acquired into the REIT's portfolio should be kept in the ISE Settlement and Custody Bank Incorporation ("IMKB Takas ve Saklama Bankasi A.S.") in accordance with the Custody Agreement executed under the provisions of Capital Markets Regulations.

REITs are subject to the rules applicable to other capital markets companies for increasing the capital in kind and their establishment. Decision of increasing the capital in kind may be taken only by the general assembly of REITs. During the increase of capital in kind, the provisions of the Communiqué Serial I, No. 26 which relates to the trusts that are subject to share capital system, shall apply. Capital in kind must be real estate or real estate rights which are not restricted by mortgage or other limitations and the those real estate or rights need to be registered with the land registry.

Listing Requirements and Shareholders

REITs are required to offer not less than 25% of the shares of the company to the public within a period set out in the regulations.

A temporary clause has been added to the latest amendment in order to clarify the status of the REITs whose shares have not been offered to the public until the date when the latest amendments of the Communiqué came in to force. The REITs which have attained their status before the publication of the latest amendments of the Communiqué may apply to the Board within the designated periods for themselves in order to offer their shares to the public representing minimum 25% of the issued capital.

For their applications to be accepted, founders of REITs must not have any outstanding debt for taxes or insurance premiums. Where the shareholder is an individual, that shareholder must also not have had any bankruptcy judgments brought against her/him or a company to which that individual is a general partner.

Requirements for Board of Directors and Management

Majority of the members of the Board of Directors are required to have at least a four-year degree from an institution of higher learning in the fields of law, construction, banking or finance or similarly related to real estate. Dealing only with real estate business is not sufficient to be regarded as experienced in this area, pursuant to article 17 of the Communiqué. Members of the board are also required to have at least three (3) years experience in above mentioned fields. In addition, members of the board must meet the following conditions;

  1. Members of the board must not have any payable tax and insurance premium debt outstanding.
  2. There must not be any bankruptcy decision or any composition of debts announcement regarding members of the board or the institutions of which they are an unlimited partner.
  3. Members of the board shall not have been sentenced for the violation of capital markets legislation, banking legislation, money laundering legislation, anti-terrorism legislation and the legislation regarding the money lending activities, and/or excluding negligent offenses and sanctioned with heavy imprisonment or imprisonment for over five years, even if they were pardoned or sentenced for the offenses of infamous crimes such as embezzlement, peculation, extortion, bribery, theft, cheating, forgery, breach of trust, fraudulent bankruptcy, smuggling excluding smuggling for consumption purposes, for involvement in fraudulent activities in official award of purchase and sale contracts or revealing secrets of the State, tax evasion or attempt for tax evasion.
  4. Members of the board shall not be among the responsible persons at the institutions of which at least one of the authorization licenses to perform the brokerage and intermediary services has been cancelled by the Board or which have been permanently dismissed from the Stock Exchange membership.
  5. No liquidation decision must have been taken for themselves or for the establishments of which they are partners in accordance with the Decree Law Regarding the Transactions of Bankers in Financial Difficulty, Law No. 35.
  6. Members of the board should not be restricted by the Board in accordance with article 46(i) of the Capital Markets Law dated 28 June 1981, Law No. 2499.
  7. Members of the board should have a certain reputation required for being a shareholder in a capital markets institution.

The members of the board can only be elected for a term of one year; however, there is no limitation on re-election of same members.

All requirements for the members of the board shall also apply to general managers of REITs other than holding a four-year degree requirement.

Asset Level and Activity Test

Article 33 of the Communiqué requires that all assets in a REIT's portfolio other than land, registered land, rights, projects whose construction has not yet started and capital market instruments must be insured by taking their market values into consideration against all damages that may be incurred.

The latest amendments impose obligations on REITs, which apply for the Establishment or Conversion, to meet the required conditions for their directors and partners, for the assets existing or to take place in the portfolios and their proportion within the portfolio should be in conformity with the limitations, provided by the communiqué in order to expedite the public offering process. Furthermore, the provision of the Communiqué prior to the amendments, which was disabling the companies whose shares have already been offered to public and/or the companies which are not holding 'an open to public' status to transform into a REIT was revoked and conversion to a REIT was made possible for those companies.

First options, rights of redemption and purchase options for a REIT arising from contracts, real estate promise to sell contracts, right for settlement of pledged receivables, and lease agreements in which the REIT is in tenant position must be recorded to the Land Registry. Please note that different relative registration fees calculated in accordance with the value of transaction for registrations to the Land Registry are applicable.

A REIT cannot be involved in operation of any hotels, office buildings, commercial properties or the like. It may also not be involved in construction of properties.

A REIT also cannot be involved in any of the following:

  • Acquiring more than 5% of the capital or voting right in any company or involving itself in exercising control over any such companies;
  • Investing in gold and precious metals;
  • Investing in capital market instruments not traded on Stock Exchange or organized markets other than the Stock Exchange. Purchase and sale of capital market instruments must be realized via the Stock Exchange;
  • Investing in commodities or commodity futures;
  • Lending or short-selling any securities;
  • Purchasing derivatives other than to the extent necessary for hedging purposes;
  • Paying commission fee and similar expenses (excluding statutory fees and taxes), being over 3% of the asset value;
  • Investing in any assets and rights that have any kind of restrictions on their transferability;
  • Continuously making short term real estate purchasing and selling operations;
  • Receiving deposit, conducting business and operations resulting in deposit collection as defined in banking regulations;;
  • Conducting commercial, industrial or agricultural activities other than as specified in the Communiqué;
  • Providing project development, project control, financial feasibility, legal permission follow up and similar other services by its personnel to individuals or entities except for the projects related to or will be related to its portfolio;
  • Providing loan, entering into debit-credit transactions with its affiliates without sale or purchase of goods or services.

At least 50% of the assets of a REIT are required to be invested in real estate or rights to real estate. Up to 50% of the assets can be invested in permitted investments.

REITs can buy and sell real estates abroad, provided that they acquire their possession rights, can invest in companies established abroad, provided that their field of operation is only the real estate, and can invest in foreign securities based on real estates. However, REITs can only invest in foreign real estate and capital market instruments backed by real estate at a maximum rate of 10% of its portfolio value.

REITs can participate only in operator companies, other real estate investment companies and companies established abroad, providing that the operational field of which is only the real estates, for the purpose of including a certain real estate to their portfolio and companies established in Turkey that the expertise value of the real estate planned to be included in the portfolio value at the acquisition date is at least equal to 75% of the balance sheet assets, in total at a maximum rate of 10% their portfolio value specified in their most recent quarterly portfolio table drew up and disclosed to the public at the end of the accounting period.

According to the latest amendments, REITs may include the buildings, land and alike characteristic real estates and real estate rights which are not subject to mortgage or any limitation that could directly and significantly affect the value of the real estate to their portfolios.

REITs could enhance projects on real estates on the conditions that the value of the mortgaged real estates which are not in ownership of a REIT should not exceed 50% of the value which has been reached for such real estates on the latest evaluation report and the value of mortgages on the mortgaged real estates should not exceed 10% of the announced asset value to the public which takes place in three (3) months table of the portfolio.


REITs must have an expert company meeting the conditions mentioned in the Communiqué and included in the list of the Board to value their assets and rights subject to the transactions and determine the market value of rents.

REITs can outsource service from the same expertise company up to five (5) consecutive years. In order to obtain service from the same expertise company again, at least two (2) years must pass. However, this condition does not apply for purchases and sale of real estates abroad.

The market value of assets and rights are determined at the end of each year. This is optional for the assets which have been inspected in the last three (3) months.

REITs must prepare portfolio tables determined by the Board pertaining to the assets in their portfolio, their costs and market values given in the most recent expertise report and submit this table to the Board and the Stock Exchange within six (6) business days following the end of each quarterly period.

Profit Distribution Obligations

Profits of REITs are distributed in accordance with the provisions of the Commercial Law dated 29 June 1956, Law No. 6762 regulating the profit distribution of joint stock companies, if it is not regulated by the articles of association of a REIT, pursuant to article 46 of the Communiqué.

Tax Treatment of a REIT and its Shareholders

Incomes of REITs are excluded from the corporation income tax and withholding tax pursuant to article 5 of the Corporation Tax Law dated 3 June 1949, Law No. 5422. On the other hand, they are not excluded from the VAT and registration fees.

Under Turkish tax regulations, shareholders of REITs are not excluded from any taxes. Therefore, they are subject to the same tax treatment of shareholders of any other joint stock companies.


1 Further information available at http://www.gyoder.org.tr/BrowseContent.aspx?MainCatID=7&SubCatID=18.

2 Available at, http://www.spk.gov.tr/apps/aylikbulten/index.aspx?submenuheader=1, under the subtitle of "Net Asset Value of REIT's" in February 2009.


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