Given the recent CSE announcement that REITs will be introduced to Sri Lanka, MTI’s Corporate Finance practice (with regional partners who have REIT expertise) have opined that “Sri Lanka is primed for REITs – given the rapid growth in its infrastructure, housing and retail domains”.
Real estate investment trusts (REITs), are investment vehicles for real estate that are comparable to mutual funds or unit trusts. They allow both small and large investors to acquire and have an undivided interest in properties owned by REITs, in portion to their invested amounts. REITs are excellent structures to channel investments into the real-estate sector and their popularity to raise funding by property owners is well established, globally.
The general benefits and structure of REITs have extensively been covered in a previous article, hence the objective of this article is to highlight the pivotal importance and reason for property owners to be involved in the REIT framework and the value-proposition that it presents to them. These value propositions can include:
Given the above benefits, one is reasonably certain there will be keen interest on the side of the property owners to launch REITs. Hence their involvement in making REITs successful is also pivotal, as emphasized below.
The main objective of a capital market is to serve as a medium for corporates to raise capital. Subsequently for a capital market to make economic sense and sustain it is essential it has quality corporates wanting to list. That is, to have a good supply side or deal flows of listed or listable entities. The importance of this is well visible and is one of the major issues faced currently in reference to the lackluster of the Colombo Stock Exchange.
Analogous to the same is the requirement for property owners seeking capital via REITS and in turn providing quality assets for REIT structures. Hence their input in being part of the policy process and making REITs a success cannot be stressed less. Needless to say that the regulator, capital market intermediaries and investment banks amongst other are all important stake holders in this equation but the catalyst from a commercial point of view will always be the property owner.
Photo: Naush Beg (MTI’s Dubai based Associate & Financial Services Specialist) and Subash Bidare (MTI’s Bangalore based Director of MTI Sri Lanka)