Real Estate Investment Trusts (“REITs”) play a critical role in providing capital to bridge the real estate deficit while also providing investors with the opportunity of benefiting from large and diversified holdings of real estate. Notwithstanding the opportunities available in the sector, the Nigerian REIT market remains underutilised and underdeveloped. This assertion gains credence from the number of listed REITs in Nigeria (3 – Skye Shelter Fund (now SFS REIT), Union Homes REIT and UPDC REIT), low level of market capitalisation (N24,960,325,637 as at October 2019), and low level of liquidity (REITs account for less than 0.5% of the entire Nigerian stock market). The poor growth of the Nigerian REIT market has been attributed to several factors including a shallow investment pipeline lacking investment-grade assets, a low level of investor familiarity with the REIT market, and sensitivity to interest rates.
As institutional investors look to diversify their investment portfolios due to the impacts of the COVID-19 pandemic on several investment products, investors may consider investing their funds in alternative investment products, including REITs. Market participants in the REIT ecosystem, including Fund Managers/promoters and investors, must pay attention to the fine details of the REIT structure to ensure that the investment product fits into their business and investment plans. This article focuses on the key legal and tax considerations for proposed participants in the REIT ecosystem.
Fund Corporate Structure
Under Nigerian securities law, real estate funds or schemes can be structured as a unit trust (REIT) or a real estate investment company (REICO) (interchangeably referred to as the “Fund”, “REIT” or “REIS” in this article). The rules and regulations of the Securities and Exchange Commission (“SEC Rules”) define a real estate investment scheme (“REIS”) as a “company, a trust or other such corporate structures that may be approved and regulated by the Commission, which is primarily engaged in, and invests in income-generating real estate assets or real estate-related assets.”
While the REIT unit trust structure is a popular option amongst participants in the Nigerian REIT market and has been utilised in structuring the 3 listed REITs, the REICO structure is also an available structure for managers and promoters. In the REICO structure, investors are entitled to shares in the REICO (a body incorporated under the CAMA) which entitles the investors to voting rights in the REICO. Unlike the REICO, the REIT is constituted under a trust deed between the Fund Manager and the Trustees, and registered with the SEC.
The beneficial interests in the net asset value and net income of the Fund are divided into transferable units or shares in the Fund, which may be listed and traded on securities exchanges such as The Nigerian Stock Exchange and/or the FMDQ.
 Companies and Allied Matters Act, 2020
Culled from CMSA Newsletter