REITS powering power projects
View(s):Energy infrastructure qualifies as “real estate assets” for REITs (Real Estate Investment Trusts) or firms that own/finance income-producing real estate across a range of property sectors and now REIT investments, officials said.
REITs rules approved by the Securities and Exchange Commission (SEC) permitting real estate developers and owners to convert fully completed properties into REITs on July 31 are clearly recognising the business case for utilising energy infrastructure such as power plants, Viraj Dayaratne, SEC Chairman told the Business Times.
Now REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other industries – over the purchase of an exchange traded fund (ETF). They operate by leasing space and collecting rent on its real estate, the company generates income which is then paid out to shareholders in the form of dividends. REITs must pay out 90 per cent of their taxable income to shareholders.
Only completed, construction projects with 20 per cent occupancy and already generating an income will be admissible for REITs.
REITs will also be popular with revenue-generating infrastructure projects such as power projects. Others – warehouses, toll roads, airports and waste management to information networks can also qualify but it takes time for their return on investment (ROI). Mr. Dayaratne said that power projects will be a better attraction for investors. “Power plants have power purchase agreements with the Ceylon Electricity Board and their ROI is fast. So, yes they can publicly list through REITs,” Mr. Dayaratna said. By listing through REITs, a power company can recover its capital on a power plant and reinvest that money in another, he added.
Mr. Dayaratne said the SEC approved the REITs listing rules submitted by the Colombo Stock Exchange (CSE). “We approved the rules on Tuesday.” The SEC can license a managing company to set up a REIT, along with a bank nominated by the company to act as a trustee for the trust, to be created by a trust deed. The managing company needs to then apply for an IPO to list on the CSE.
Analysts said that REITS will help unlock value trapped in existing real estate assets and will channel private money into power projects to offer investors a liquid investment product.
(DEC)