REIT – Real Estate Investment Trusts
explained by Anas Benkirane
In August 2016, the Kingdom of Morocco adopted Law No. 70-14 relating to Real Estate Investment Trusts (REITs).
The country is thus strengthening its capital market by putting this new financial instrument at the service of companies, investors and savers. Through this initiative, he is the third in Africa to have adopted it.
REIT, what is that?
The REIT is an investment vehicle in real estate (professional in particular for rental use) and financial assets. In Morocco, they are classified into two categories:
– REITs open to the general public
– REITs with simplified operating rules (OPCI – RFA) reserved for qualified investors
A newcomer to the Moroccan financial sector, the REIT must hold real estate that is leased or intended to be leased and generates rents. These are returned to investors in the form of dividends.
The targets :
- Professionals (companies and institutions)
- Legal forms of REITs: Real Estate Investment Fund (FPI) or Real Estate Investment Company (SPI)
Composition of an REIT’s assets
The composition of the Assets is subject to 3 quotas imposed by article 27 of law 70-14:
- Quota of real estate assets: at least 60% of the assets;
- Liquidity quota: at least 10% of assets;
- Quota for undeveloped land and assets under construction: no more than 20% of total immovable property
Who is authorized to manage an REIT?
The regulatory provisions require that an REIT be managed by a portfolio management company approved by the AMMC. Indeed, the management company provides regulated investment services relating to portfolio management, both individual and collective, of financial and/or real estate instruments on behalf of investors.
As a result, and to meet the requirements of their activity, management companies must justify themselves with sufficient organizational, human and technical resources and in line with the nature and evolution of the level of maturity of their activities and market practices. .
It is therefore essential for Management Companies that the organizational structure put in place allows:
- The exercise of its activities with diligence and impartiality in the exclusive interest of security holders;
- Prevention of conflicts of interest;
- The separation of tasks and incompatible functions by specifying the respective responsibilities, prerogatives and fields of intervention;
- The definition of distinct and adequate levels of control;
- confidentiality of information;
- The continuity of the exercise of activities;
- The implementation of function delegations is strongly recommended during the REIT launch phase.
Consequently, management companies could outsource some of their activities (authorized by the AMMC) to focus on their core business. This choice does not exempt them from the responsibilities attributed to them by the regulatory texts in terms of monitoring and monitoring of outsourced activities. The optimal organizational choice for management companies would be to adopt an outsourcing scheme for the property administration activity. This therefore constitutes an opportunity for Property and Facility Management players in terms of real estate management linked to the operation of real estate assets as well as its technical maintenance.
What are the advantages for a company of investing in an REIT?
An investor can benefit from a number of advantages by investing in an REIT:
- Investment in a vehicle regulated by a supervisory authority (AMMC)
- Financing and Refinancing of rental assets
- Transformation of liquid real estate assets into illiquid by their nature through a transfer of assets to REITs
- Revaluation of the portfolio to its fair value allowing significant tax-exempt capital gains to be made;
- Improvement of the overall profitability of the assets through the sale of less profitable rental assets allowing the development of new rental assets;
- Optimization of net income through the rental assets of an REIT;
- Transfer of property management to expert management companies;
From a tax perspective, REITs benefit from:
- Tax exemption for capital gains at the time of contribution for real estate;
- Exemption from registration fees on contribution in cash or in kind;
- Payment of tax on the partial or total transfer of securities with a 50% reduction;
- Exemption from corporation tax on the profit made by the REIT;
- Exemption from withholding tax (RAS) on dividends, interest and similar income received by the REIT;
- Reduction of 60% on corporate tax at the standard rate for Dividends received by companies and 85% for individuals under the (RAS);
- Exemption from registration fees for subscription and redemption transactions.
What interests for the moroccan real estate market?
The development opportunities for REITs in Morocco should be promising given the rental yields offered and the expected professionalization of management. The interests for the real estate market are numerous:
Professionalization of rental real estate, in particular office real estate, with the presence of professionals (Property Management / Facility and Real Estate Experts);
Dynamics of the rental real estate market with potential transactions estimated at 200 billion MAD in the office market segment. There are also other significant opportunities in the retail segments (malls, shopping centers), tourist residences, warehouses and industrial hubs.
Transparency at market level through the valuation at fair value of the underlying real estate assets at a half-yearly frequency;
Reduction of informal practices. Legal certainty and regulation can lessen the effects of the informal sector.
Where can I subscribe to REITs?
Subscription is made with management companies approved by the AMMC. For this purpose, the ABTI agency has an agreement with an approved management company.
Is the REIT liquid?
Yes, the REIT is a liquid product. Investors may ask the REIT management company to redeem some or all of the shares/units they hold at any time.
Is the capital guaranteed?
No, the capital is not guaranteed. However, the value of real estate is not lost.
What is the optimal investment period in an REIT?
The holding period for REIT units can be around 8-10 years
What information is intended for investors?
The investor can hold periodic annual, half-yearly or quarterly information (management report, financial statements, summary reports of the evaluators, state of the assets of the REIT, report of the auditors, …) or occasional (regulations of management of the REIT…)
How to get out of an REIT?
Exiting an REIT can be done at any time, at an unknown short, and on the basis of an established net asset value.
Source : www.ammc.ma