Turkey: The Communiqué Regarding The Amendments To The Communiqué On Principles Of Real Estate Investment Companies

Last Updated: 25 May 2017
Article by Bilge Binay Kanat and Ecem Bağlarlıoğlu

The Communiqué Regarding the Amendments to the Communiqué on Principles of Real Estate Investment Companies ("Communiqué") has been published in the Official Gazette dated 17.01.2017 and numbered 29951 and entered into force at the date of its publication("Amendment Communiqué"). According to the Amendment Communiqué:

  • Real Estate Investment Companies that will operate a portfolio composed of exclusively infrastructure investments and services ("REICs") shall carry out the below stated steps within 2 years following the registration of incorporation or amendment of articles of association:

    • To build an organization which provides the necessary site, equipment and staff members for carrying out the operations,
    • To ensure that the qualifications of the assets in the portfolio and the significance of these assets in the company are in line with the stated limitations and provide the documents that prove this issue to the Capital Markets Board.
  • In case the REICs only operate with the production license or similar prerogatives they have regarding infrastructure facilities, there is no obligation for REICs;

    • To make a statement in the articles of association that minimum 75% of the REICs' total assets will be composed of infrastructure investments and services,
    • To invest at least 51% rate of the REICs' total assets on real estates, real estate projects and rights based upon real estate.
  • The period provided in accordance with the Communiqué on Corporate Governance to legalize the deposits, pledges, mortgages and sureties that are unlawfully issued against the provisions regulating the deposits, pledges, mortgages and sureties; begins with the registration of the incorporation or the amendment of the articles of association of the REICs that are incorporated or transformed to operate a portfolio with infrastructure investments and services.
  • Only board of directors' members with four years of higher education can take part in the committees that are established before board of directors based on the Capital Markets Board's regulations. If a board of directors' member is a legal entity, the natural person who is assigned by this legal entity in line with the Turkish Commercial Code shall also have a four year higher education degree to take part in the abovementioned committees.
  • The decision regarding an assignment of a member to the board of directors shall be delivered to the Capital Markets Licensing and Training Agency ("CMLTA") (Sermaye Piyasası Lisanslama Sicil ve Eğitim Kuruluşu A.Ş.) within 10 (ten) business days at the latest, with the documents proving that the assigned person qualifies for the conditions. The natural person that is assigned by a legal entity member of the board of directors for the purpose of representing such legal entity in line with the Turkish Commercial Code, shall be reported to CMLTA with the documents proving the possession of the conditions stated in Article 17.2 of the Communiqué, within 10 (ten) business days at the latest following the announcement of the registration.
  • The real estates that will be included in the REICs' portfolio shall comply with each other in terms of; (i) their qualifications in the land title registry, (ii) their type of actual use and (iii) their inclusion qualification to the portfolio. Nevertheless, if there is a building which is non-profitable, abandoned or registered as risky on the land that is in the possession of REICs; after determination of such conditions by means of a valuation report, the foregoing requirement of compliance will not be necessary provided that it is notified to the Capital Markets Board that these buildings will be demolished or their status in the land title registry will be amended.
  • In addition to the transactions which REICs' are legally prohibited from; REICs shall not lend money to their related parties for a purpose other than the sale of goods or services.
  • REICs that will operate exclusively within the portfolio consisting of infrastructure investments and services are able to operate directly in the infrastructure facilities related to a generation license and/or infrastructural privileges; on the condition that these REICs possess the aforementioned license and/or infrastructural privileges.
  • With the purpose of financing real estate investments within the portfolio of a subsidiary, the REICs can; establish mortgages, pledges and limited real rights on the assets in its own portfolio, or also can issue securities, guarantees and sureties in favor of aforementioned subsidiary provided that the REIC holds %100 shares of the aforementioned subsidiary.
  • In case of the sale of the independent sections from the ongoing or completed real estate projects in the REICs' portfolio where the current price of the independent sections are determined within the last three months of the REICs' financial year; it is possible to use the determined price in the mentioned evaluation report in the following year, until the determination of the year-end prices of the assets of which the current price could not be determined within the last three months of the financial year of the REIC for any reason.
  • Instead of determining the lease rate of the premises for lease such as shopping mall, business place, commercial storehouse, office and branch which are included in the portfolio separately, it is possible to have the lease rate of the entire premise determined at once. In the event that the lessee is a related party of the REIC, it is obligatory to have the lease rate of the relevant independent section that is leased to such related party determined.
  • In case that the current lease rate of the abovementioned premise is determined within the last three months of the financial year, it is possible to use the determined price rate in the mentioned evaluation report in case of the change of lessee or renewal of the agreement in the following year until the determination of the year-end prices of the assets of which the current price could not be determined within the last three months of the financial year of the REICs for any reason.
  • The REICs are obliged to announce the purchasing transactions to the portfolio, leasing and selling transactions from the portfolio, the purchasing, selling and leasing transactions which exceeds 2% of the total assets stated in the latest financial tables of the REIC within 1 (one) business day following the completion of the transaction at the latest; the purchasing, selling and leasing transactions which does not exceed 2% of the total assets stated in the latest financial tables of the REIC within 10 (ten) business days following last day of the financial year through the Public Disclosure Platform.
  • Article 45 paragraph 2 of the Communique stating "REICs cannot perform the distribution of dividends in cash prior to the public offering of the shares or sale of these shares to a qualified investor" shall not be applicable until 31 December 2017 to the REICs that exclusively manage their portfolio which is composed of infrastructural investment and services.

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.

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