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Deniz Mina Küpana


Real Estate Investment Trust

Recently great number projects have been initiated along with the increase in investments and demands as a result of the developments in the real estate market in Turkey. As these projects usually require high costs, how they will be financed is the first question running through the minds.  In this sense, as is the case with other sectors real estate investments usually encounter financing problems, and new types of funding are being searched for by the investors, that may be alternative to taking out a loan.  This is where real estate investment trusts (REIT) step in and open a new door for both investors and project owners operating in the promising real estate market. For, in the projects requiring full-scale investments such as shopping malls and business centers, both parties are confronted with the same problem, and at this point REITs play a crucial role as the problem-solver.   

From this point of view, real estate investment trust mentioned above is defined by the “Communique on Principles of Real Estate Investment Trusts” as a type of capital market institution founded in order to invest in real estates, real estate projects and real estate-based rights.   In that case, looking in terms of their areas of activity, REITs come into play concerning the funding of construction projects carried out by other persons; it is out of question for these establishments to undertake mentioned projects.   REITs invest in real estates or projects, and distribute the profit gained from here to their partners as dividends.

Since these establishments are legal entities, it is important to consider and characterize them in legal terms. REITs may be founded in two ways as per Article 6 of the Communique. The trust may either directly be founded as a REIT, or joint-stock companies may be converted into a REIT. At this point specific conditions are stipulated for foundation of a REIT such as, being subjected to the provisions of Turkish Commercial Law regarding joint stock companies, as well as obtaining permission from the Capital Markets Board. 


The requirements in order for the Board to approve an application for foundation or conversion of a REIT are:

- The REIC must have been founded in the form of a joint-stock company with registered capital or must be a joint-stock company and must have applied to the Board for shifting to registered capital system;

- In the case of foundation, its initial capital, or in the case of conversion, each of its existing paid or issued capital and shareholders’ equity shown should not be less than TL 30,000,000 and if it will operate a portfolio consisting solely of infrastructural investments and services, it should not be less than TL 100,000,000;

-Its name must contain the phrase “Real Estate Investment Trust” or it must have applied to the Board for change of its name so as to include this phrase;

-Its founding partners or existing partners must meet the conditions and bear the qualifications set forth in this Communiqué;

-Its articles of association must be in accordance with the provisions of the Law and this Communiqué, or must have applied to the Board in order to amend its articles of association in such manner to be adapted to the provisions of the Law and this Communiqué;

-Its general manager and members of its board of directors and  must meet the conditions specified in this Communiqué, and its general manager must have been elected at the time of application for foundation or conversion and must have been appointed no later than the date of registration of foundation or amendments in articles of association in the trade registry, or if it will operate a portfolio consisting solely of infrastructural investments and services, must have been appointed within six months following the date of registration;

-Qualifications of assets included/to be included in its portfolio and their existing/future weights in total assets of the trust must be in conformity with qualifications and limitations specified in this Communiqué;

-In applications for foundation, if capital in kind is injected at the time of foundation, the value of capital in kind must have been determined and calculated pursuant to Article 9 of this Communiqué;

-It must have been duly committed to the Board that its shares equal to 25% of its initial capital or issued capital will be offered to public in accordance with the principles and within the period set forth in this Communiqué, or if will operate a portfolio consisting solely of infrastructural investments and services, will be offered to public or will be sold by private placement to qualified investors; and

-Its capital must not have been increased out of funds created by carriage of assets to current market value during the last two years.

Due to the fact that REITs are joint-stock companies by nature of their structures, they must both be subjected to the qualifications specific to joint-stock companies stipulated by the Turkish Commercial Code (TCC), and meet the requirements of their own legislation. In other words, a REIT should not only be satisfying the conditions set forth in TCC (board of directors, articles of association etc.) but also bearing the qualifications stipulated by the specific legislation.

With the “Communiqué on the Amendment to the Communiqué on Principles of Real Estate Investment Trusts” published in the Official Gazette dated 17 January 2017, a number of changes are made regarding the REITs. Significant amendments included in the Communiqué are briefly provided below:

-For a REIT that operates a portfolio consisting solely of infrastructural investments and services and if it carries out its activities only within the scope of production license or other similar privileges owned in relation with the infrastructure facilities, it shall not be required to satisfy; -the ratio stipulated in the second paragraph of Article 5,

-the requirement that ‘it should clearly be stated in their articles of association that minimum 75% of their total assets will be composed of infrastructural investments and services’, and -the requirement stipulated in the sub-paragraph (a) of first paragraph of Article 24.

-Most of the members of the board of directors who will be taking part in a REIT must have a bachelor’s degree, and at least three years of experience in the REIT’s areas of activity such as real estate, infrastructure, law, construction, banking and finance.

-Definition in the land registry, and actual purpose of use, and purpose of inclusion in portfolio, of the real estate to be included in the REIT’s portfolio must be consistent.

-And lastly, while appraising the rental values of the rented buildings such as shopping malls, business centers etc. that are included in the REIT’s portfolio, the building shall be appraised as a single unit.   


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