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Newsletter | February 2014, Issue 1
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REAL ESTATE |
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Amendments to Enforcement Decrees of Real Estate Investment Trust Act |
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Following the recent amendments to the Real Estate Investment Trust Act (“REIT Act”) ameliorating certain regulations on real estate investment trust (“REIT”) securities, certain amendments to the Enforcement Decrees of the REIT Act (“Amendments”) providing details on the amended REIT Act have become effective as of January 17, 2014. |
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The following are key highlights of the Amendments. |
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Previously, the National Pension Service and certain other pension funds (“Exempt Entities”) were exempt from the REIT public offering requirements, as well as the cap on the maximum percentage of REIT shares that could be owned by a single shareholder. Pursuant to the Amendments, the Korea Post Office was added to the list of Exempt Entities. |
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Previously, the subsidiary-REIT of a parent-REIT was also entitled to the above exemptions if any single Exempt Entity owned more than 50% of the parent-REIT. Since the Amendments, the subsidiary-REIT is now entitled to the same above-described exemptions if one or more Exempt Entities, on an aggregate basis, owns more than 50% of the parent-REIT. |
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Previously, REITs were required to invest at least 70% of its assets in real estate; provided, that for purposes of this test, majority interests (i.e., 50% or more) in entities whose real estate assets consist of 80% or more were deemed to constitute real estate assets. Since the Amendments, REITs are now also able to invest in equity interests in special purpose vehicles established for the purpose of real estate development, as well as partnerships and indirect subsidiaries (provided, that 80% or more of the assets of such partnerships and indirect subsidiaries are comprised of real estate). |
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Previously, REITs were not permitted to invest more than 5% of its assets in shares issued by another single entity, except in certain limited cases. Under the Amendments, REITs are now expressly permitted to acquire beneficial interests in real estate trusts as an exception to the foregoing 5% rule. |
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In addition, the Amendments have strengthened measures to secure the soundness of REIT investments, for example, by providing that only appraisers recommended by the Korea Appraisal Board or Korea Association of Property Appraisers are qualified to appraise real estate owned by REITs and requiring owners of 5% or more of the shares in self-managed REITs to satisfy certain strict qualifications. |
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