Real Estate Investment Trust (REIT) is primarily engaged in investing in income-generating real-estate assets or related assets. The purpose of REIT is to afford investors the opportunity to invest in real properties and also enjoy the benefits accrued from investment trusts. Before real estate investment trust was invented, investors only had the opportunity to invest in real estate by buying houses or building one from the scratch. Now with the advent of REIT, investors can now invest in units of real properties in the stock market.
REIT are either open-ended or closed-end funds created exclusively for holding real properties, mortgage-related assets, or both, traded in the stock or property market. It is a form of collective investment scheme that involves the combination of the capital of investors to provide financing for real estate investments, which in turn allows individual investors to invest, own and manage portfolios such as apartment complexes, hotels, retail centers, self-storage, warehouses, and related real-estate assets. REIT is established for the sole purpose of acquiring an intermediate or long-term interest in real estate or property development to raise funds from the capital market through the issuance of securities in favour of the pooled investors that contributed to the trust. Before investing in REIT, it is important to state that they are managed by professional fund managers who understand the stock and property market.
In REIT, the investor acquires units in the trust through which they shall be entitled to receive periodic distributions of income and participate in any capital appreciation of the property concerned. Investors are entitled to retain control over their investment by investing directly in a particular property rather than in a portfolio of investments.
Title to Real Estate Investment Property
The Investment and Securities Act (ISA) 2007 and the Securities and Exchange Commission Rules 2013 regulates REIT in Nigeria. Section 154 of the Act empowers the Securities and Nigerian Exchange Commission (SEC) to approve, register, and regulate collective investment schemes in Nigeria, including those that are administered as a real estate investment trust.
By the provision of Rule 509(1) of the SEC Rules, "a Real Estate Investment Trust can and shall wholly acquire and hold legal title to property or choose to hold equitable and beneficial title to such property vide a Trust Deed or such other structure as may be acceptable to SEC".
SEC permits the real estate investment trusts to hold or acquire assets through the use of a declaration of trust whereby the legal interests in the real estate resides in the vendor and all beneficial interest are transferred to the real estate investment trust.
To safeguard the REIT, Rule 509(2) SEC Rules provides that where a real estate investment trust property is held vide a Trust Deed or such other structure acceptable to SEC, the following safeguards shall be maintained:
- Register a caution indicating the interest of the scheme in the relevant land registry that the property is located;
- Affix plaques and other notices on the relevant property indicating the interest of the scheme;
- Deposit the original title documents and other relevant pre-signed documents with the scheme's custodian;
- Provide such indemnity to the scheme as may be necessary in the circumstance.
It must be noted that by the provision of Rule 508 of the SEC Rules, a REIT shall qualify as asset-backed security or mortgage-backed security (in the case of a mortgage and hybrid real estate investment trust.
Registration of REIT with the Securities and Exchange Commission (SEC)
REITs are required to register with SEC and the application for the registration shall be filed on the appropriate SEC Forms in compliance with the SEC Rules.
Requirements for the registration of REIT
- Application Form SEC 6A.
- Two copies of draft Prospectus.
- Two copies of the Trust Deed.
- Letter of consent form the prospective parties to the trust.
- Two copies each of Certificate of Incorporation and Memorandum and Articles of Association of Managers duly certified by the Corporate Affairs Commission (CAC).
- Two copies each of Certificate of Incorporation and Memorandum and Articles of Association of Trustee to the trust duly certified by the CAC.
- Two copies each of Certificate the particulars of the directors of the manager and trustees of the trust certified by the CAC.
- Sworn undertaking to file evidence of the maintenance of a separate trust account in a reputable bank.
- Evidence that the minimum paid-up capital of the manager and trustee complied with the requirements of SEC as stipulated in the SEC Rules and Regulations.
Requirements for the Registration of Units of REIT
- The name under which the issuer is doing business and the address of its principal office.
- The name of the proposed scheme investment objective of the scheme.
- Investment outlets.
- The number of units proposed for the issue.
- Nominal value per unit.
- The names and addresses of the Directors or persons performing similar functions, the Chief Executive Officer and the Chief Accountant.
- The name and address of the brokers to the scheme.
- The names and addresses of all persons owning 5% and above of any class of shares of the issuer both on record and beneficial as at the date of filing the application for registration of the trust scheme.
- The amount of the proposed units of the issue to which any person has indicated an intention to buy or subscribe.
- The general nature of the business actually transacted or to be transacted by the manager.
- Sworn undertaking to file quarterly reports with SEC.
- Any other information required by SEC from time to time.
Requirements as to Form of Prospectus
The information required to be used or in the offering of sale of units of the proposed real estate investment shall follow the order below provided in Rules 528 and 530 and thereafter it needs not follow any particular order provided that the information is set forth in such a manner as not to obscure any required information from being incomplete or misleading.
Content of the Prospectus as provided in Rules 530
- The front cover shall state the name of the issuer/promoter, the fund manager, the RC number of the fund manager, the trustee, custodian, the type of units offered, amount of units being offered, the price, and amount payable in full on application. Provided that the initial public offer shall not be less than N1Billion Naira and subsequent offers not less than N500 Million.
- A table of contents in the forepart of the prospectus showing the subject matter of the various sections or subsections of the prospectus and the page number on which each of the sections or subsection begins.
- A corporate directory of the fund manager shall include the following details;
- Directors and principal officers;
- Names and profile of the investment committee members specifying the independent members;
- E-mails and website address (if any);
- Three to five years financial summary, where the fund manager is a new company then it shall furnish a statement of affairs.
- Corporate directory of valuers, issuing house, registrar, solicitor to the issue, reporting accountants, trustee, rating agency, and property manager where applicable.
- The offer, offer price, the times of opening and closing of the offer.
- History and prospects of the scheme.
- Management and advisory services.
- The objective of the fund, strategy for achieving the stated objective, and a statement that material changes to the investment objective would require the unit holder's approval.
- Dividends, distribution, and reinvestment options, amongst others.
Requirements as to Form, Number of Trust Deed
Every trust deed filed for the purpose of registration of a real estate investment trust with SEC must be printed and properly bound.
Registration of the Trust Deed with SEC must contain the following;
- Two copies of the trust deed together with a completed application for authorization of the scheme.
- The trust deed shall state the following information;
- The date of the trust deed;
- The name of the management company;
- The name of the trustee company;
- Name of the scheme constituted by the trust deed;
- That the trustee will be liable for breach of its duties where it fails to carry out its responsibilities under the trust deed or report a breach of the terms to SEC.
In conclusion, a real estate investment trust is a form of investment that allows investors to purchase interests in a professionally managed portfolio of real estate. The property investors stand to gain exposure to the value of the real estate that the trust owns and also the regular income generated from the properties.
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.