Can REITs provide new options for real estate finance in Malta?

Can REITs provide new options for real estate finance in Malta?

As part of the 2019 budget, the government has pledged to introduce a Real Estate Investment Trust (REIT) framework in Malta. This can result in a significant increase in the availability of financing for projects within the real estate sector in Malta.

Real Estate Investment Trusts are companies that own and manage various types of properties. These companies earn regular income through the rental of these properties, which is then distributed to shareholders in the form of regular dividends. The companies also offer investors the potential to gain from the long-term appreciation of properties within the company’s portfolio.

A number of countries across the world have put REIT regimes in place, allowing investors to benefit from the structure’s features. This includes around 14 countries within the EU, such as Germany, France and Italy. REITs are generally required to be publicly listed companies.

While REIT regimes vary from country to country, the structure delivers a number of common benefits. The main benefit of the structure is that it allows investors a tax efficient way to invest in real estate projects, including large-scale projects in which they would otherwise not be able to invest on an individual basis.

This allows for greater liquidity within the real estate sector, with investors also able to achieve greater diversification. The introduction of a REIT regime also opens up real estate investments to more investors, including both professional and retail, increasing financing options for real estate projects. 

A number of countries have put REIT regimes in place

REITs are generally required to distribute a large proportion of their earnings to shareholders through dividends. This allows investors to earn regular returns from real estate without the complexities of owning and managing physical property.

The significant scale of typical REITs allows for the companies to have more dedicated resources providing professional management of properties, benefitting both investors and tenants. This scale also allows REITs to finance projects in a more effective manner and provide stable financing for projects being undertaken. 

Being listed entities, REITs also provide investors with more regular and transparent disclosures. In addition, the European Public Real Estate Association (EPRA), a prominent organisation within the European publicly traded real estate sector, has issued best practice recommendations that have been adopted by a larger number of REITs, allowing for further reporting disclosures over and above public reporting requirements.   

REITs generally focus on specific real estate sectors, using sector expertise to improve properties and provide robust returns to investors. These sectors include offices, retail properties, industrial properties and residential properties. Some REITs may take the form of diversified REITs, which own properties across a various sector within real estate.

A number of specialised REITs have also served to unlock investments that have significant social benefits. These include REITs owning healthcare-related real estate, such as GP practices, medical centres, hospitals and elderly care homes, which have helped support communities. REITs have also introduced innovative options for the financing of social housing stock in various countries.

While details of the REIT regime to be implemented in Malta have yet to be announced, the introduction of this framework can bring about a number of benefits. These include easier access to real estate investments for a wider investor pool, improved transparency to investors and more professional property management.

REITs can also act as vehicles to support investments which bring about a high level of benefits to society.

George Vella is a Partner at Grant Thornton Malta where he leads the Advisory Team.

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