DO THE REIT THING

Turkey 2011 | REAL ESTATE & CONSTRUCTION | FOCUS: REAL ESTATE INVESTMENT TRUSTS

For foreign investors looking to invest in the potential of the local real estate sector, REITs offer an alternative route.

Real estate investment trusts (REITs) have emerged as some of the largest players on the Turkish real estate scene of late. REITs are considered to be similar to investment trusts in Turkey, are fully regulated by the Capital Markets Board (CMB), and their activities are limited to investments in the local real estate sector. The temptation for many large Turkish corporates to establish a REIT is considerable, being that they are exempt from the 20% corporate tax under current regulations.

Whether established afresh or based on converted joint stock companies, REITs are required to offer at least 25% of their shares to the public on the Istanbul Stock Exchange within a period of time agreed with the CMB. Companies with large land or real estate holdings have used the opportunity of listing a REIT as a means of moving fixed assets off their balance sheets into a lower tax threshold. The opportunity to sell equity stakes in a company on the ISE is also attractive, allowing companies to gain a fresh source of funding for other real estate projects.

As of the beginning of 2011, there were 21 listed REITs on the ISE, with the biggest two, Emlak Konut REIT and Torunlar REIT, coming to market in 4Q of 2010. İş REIT, Sinpaş REIT, and Akmerkez REIT round off the top five in terms of net asset value (NAV) and market capitalization. Financial institutions head up the REIT sector in terms of numbers, with İş Bank, TSKB, Vakıf Bank, and Akbank already present, and Halk Bank indicating its willingness to launch an IPO for its own REIT in 2011.

The total NAV for listed REITs was some TL12.9 billion at end-2010 according to ISE figures, while the market capitalization was some TL11.6 billion, indicating a NAV discount of approximately 10%. According to YF Securities research, the historical five-year weighted NAV discount for REITs has been a more hefty 26%. Investor confidence in the sector was dented in 2007 when some of the smaller REITs, such as Pera REIT and Sağlam REIT, became the apparent targets of “pump and dump" speculators on the ISE, seeing their share price soar and then collapse in rapid succession. However, the CMB has kept a close eye on the itchy fingers of ISE traders since then, and the REIT sector has matured as a whole tremendously.

The new main player in the REIT market is Emlak Konut REIT, and it brought to the sector a hefty NAV of TL5.8 billion and a market capitalization of TL5.7 billion as of end-2010. Emlak Konut REIT is a spin-off from the Housing Development Administration of Turkey (TOKİ)—a public housing program supervised by the Prime Ministry—and it retains a 75% stake in the company. The company's land bank is a staggering 5.73 million square meters, and the close relationship it has with TOKİ will see it take the lion's share of the 500,000 new homes the government has promised to deliver by 2023. The commitment of Prime Minister Recep Tayyip Erdoğan to the program is no idle boast: between 2003 and 2011 TOKİ, and by extension Emlak Konut REIT, had already built some 483,000 homes for predominantly low to middle income earners—all at a handsome profit.