Sri Lanka Real EstateInvestment Trusts

SL - REIT

WAREHOUSE

HOTEL

HOSPITAL

Real Estate Investment Trust or REIT is a sub category of Unit Trusts, which acts as a Collective Investment Vehicle. REITs pool money from public investors and such money could be used to acquire residential and commercial property, retail or industrial properties, infrastructure or other real estate-related assets.

Investors of the REIT can benefit from income and capital appreciation of such property. This new product will enable the general public to access the benefits from growing real estate

sector, which is otherwise restrictive due to exorbitant prices of property leading to unaffordability.

REIT is a popular alternative investment option in many other countries including in the Asian region and in existence for many

decades. In Sri Lanka, the same is known as ‘SL-REIT’.

SL-REIT is facilitated only as a listed REIT in the Colombo Stock Exchange (CSE) through a licence issued by the Securities and

Exchange Commission of Sri Lanka (SEC).

What is SL-REIT ?

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HOTEL

Eligible Properties for SL-REIT

Conditions to be satisfied

Fully completed Fully or partially occupied Generating income

Mode of Acquisition

Outright Purchase Lease

Examples of Types of Properties

Residential Properties Commercial Buildings Warehouses

Hospitals HotelsInfrastructure projects such as

power generation projects

Regulatory Framework� Rules of the SEC - Extraordinary Gazette Notification – No.2186/29 -31st July 2020� CSE Listing Rules

Key Stakeholders of a SL-REIT

Managing Company Trustee Sponsor

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HOTEL

REIT Structure

REGULATORY STRUCTURE REIT STRUCTURE ASSETS STRUCTURE

FRAMEWORK

LISTING RULES

APPROVAL

LICENSED

UNIT HOLDERS/ SPONSORS

MANAGING COMPANY

PROPERTY MANAGER

ASSETS CLASS

RENTAL INCOME

GENERATION SL-R

EIT

TRUSTEE

TRUST (REIT)

Benefits to Investing Public

� Increased returns from growing property sector

� Capital appreciation reflected in Unit Price

� Ability to minimize volatility through 90% rental

� Liquidity added to market through listing

� Mandatory valuation to provide transparency

� Capital Gain arising from appreciation of the property value

� Expected to benefit from the Tax Pass through structure presently available to unit trusts

Managing Company

Managing Company oversees:

�Property Manager�Compliance Officer�Construction Contractor�Designated Persons

Eligibility to obtain a licence from the SEC

�Incorporated in Sri Lanka; �Stated Capital - 50% or more of local equity; and �Minimum Shareholders’ Funds of LKR 50 Million

Duties:�Perform duties in accordance with applicable

Rules and Trust Deed

�Ensure validity of title

�Operate according to the Trust Deed

Benefits: �Diversify income portfolio to add REITs.

�Can convert existing UT clients to REIT clients

�Opportunity to increase industry visibility

�Capitalize on shared Overheads

�Increase opportunities for additional Fee Income.

Required Documents to obtain a licence to become a Managing Company

�Explanatory Memorandum – Equivalent to a Prospectus including all the details relating to the offer�Trust Deed�Title Deeds, Survey Plans and other supporting documents

Trustee

Eligibility:� Be a bank licensed by the Central Bank of

Sri Lanka� Appointed with the prior approval of the SEC

Duties:� Fiduciary duty to hold the assets� Shall ensure:§ validity of title deeds or lease agreements§ relevant approvals§ validity of contracts § property registered in the name of the Trustee § valuation, Legal Audit§ Investments, borrowing limitations

Sponsor

An Individual or a Company who owns the property which is to be transferred into the REIT through

the Managing Company

Eligibility:� Be the owner of the property intended to be transferred into the REIT

� Willingness to hold a minimum of 30% of Units of the REIT at the time of issue of units and thereafter

� Will be able to exit upon introduction of a Strategic Investor for such 30%

Property Manager

Eligibility:� Expertise and experience in Real Estate

maintenance

Duties:� Maintain the asset in a marketable condition

Compliance Officer

Eligibility:� Attorney at Law who is a notary public

� Minimum of ten years in the field of Conveyancing

Duties:� Compliance Reviews � Examine irregularities of Managing Company’s operations� Update Compliance Manual� Advising on any matter on Compliance

Construction Contractor

Eligibility:� Local Contractor - Registered with

Construction Industry Development Authority in the highest level for at least five years for building construction category

� Foreign Contractor – possess an equivalent registration from the country of origin

Duties:� Carry out major modifications

Valuer

Eligibility:� Fellow IVSL, RICS or Government Chief

Valuer

� Appointed by Trustee

Duties:� Perform valuations every six months

� Valuation Report to be shared with Trustee, Managing Company, Market via CSE & SEC

Designated Persons Responsible for the Fund

Eligibility:� Minimum five years of senior managerial

experience

� Expertise in Real Estate Investments

Duties:� Real Estate Portfolio Management

Permitted Investments

80% - Real Estates20% - government securities and/or in cash or near cash

The maximum amount to be invested in real estate could exceed 80% with the prior

approval of the SEC

Fees

Front End Fee Annual FeeBenchmark

Performance FeePerformance Fee

Total Fees less than 4% of Total Value of REIT

Borrowings

� Maximum 30% of Net Assets Value of REIT� Via Listed Debentures or Loans� REIT Property cannot be pledged

Types of Audits

� External Audits of Financials� Legal Audits relating to title of Property� Internal Audits

Pricing of Units

� By an Independent Firm of Chartered Accountants at the time of Listing

� By the Market Trading Price subsequent to Listing

Dealing & Suspension of Units

� Dealing & Suspension of units shall be in compliance with applicable Laws and Regulations

� Creation and Cancellation of Units allowed

Public Offers and Listing

� Listing to take place within 3 months of granting of Licence

� Methods of Offering – IPO or Introduction

� No of Unit Holders - 100 at the time of Listing

� Public Float – 20% at the time of Listing

� Minimum of 50 unit holders at all times

� To be eligible to any applicable tax benefits

� Rights Issue of Units are allowed

� Continuous Market Disclosures

Level 28 and 29, East Tower, World Trade Centre, Echelon Square, Colombo 01, Sri Lanka.Telephone : +94 11 2143843, 2143860 (Direct)Fax : +94 11 2439149Email : mail@sec.gov.lkWeb : www.sec.gov.lk