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Newsletter | July 2016, Issue 2
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REAL ESTATE
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Real Estate Investment Trust Act Amended to Diversify Investment Targets and Profit Structures, Lower Barriers to Use of REITs
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On January 19, 2016, certain amendments to the Real Estate Investment Trust Act (the “REIT Act”; and such amendments thereto, the “Amendments”) were promulgated. The aim is to diversify investment targets and profit structures of real estate investment trust companies (“REITs”), and to lower certain barriers to the use of REITs in the acquisition and operation of real estate.
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The Amendments will become effective on July 20, 2016. The Amendments include, among others, the following:
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1. Lowering of Minimum Paid-In Capital of REITs
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The Amendments will lower the required minimum paid-in capital of a self-managed REIT at its establishment from KRW 1 billion to KRW 500 million.
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It will also lower the required minimum paid-in capital of a third-party managed REIT or corporate-restructuring purpose REIT (“CR-REIT”) at its establishment from KRW 500 million to KRW 300 million.
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2. Introduction of Requirement to Register with MLIT for third-party managed REITs and CR-REITs
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Under the Amendments: (1) for third-party managed REITs whose 30% or more shares are owned by the National Pension Plan (“NPS”) or one of the other specifically enumerated pension plans, and (2) CR-REITs, the requirement will be simply to register with the Ministry of Land, Infrastructure, and Transport (the “MLIT”).
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This is in lieu of obtaining business approval of the MLIT, as it is required under the current REIT Act. However, this only applies if 30% or less of the assets of such third-party managed REIT or CR-REIT, as the case may be, were invested in development assets.
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3. Easing of Restriction on Acquisition of Securities
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Under the current REIT Act, a REIT may not acquire more than 10% of the total voting shares of any single company. In addition, no more than 5% of a REIT’s assets may be composed of the shares of any single company, unless certain exceptions thereunder apply.
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The Amendments add more exceptions to such exceptions by allowing a REIT to acquire up to 100% of the shares of a company that: (1) leases and operates real property owned by such REIT and/or related facilities; or (2) is engaged in tourism accommodation business or other business enumerated in the Presidential Decrees of the REIT Act (such company, an “Operating Company”).
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Similarly, under the Amendments, the asset composition requirement above is relaxed with respect to Operating Companies, such that no more than 25% of a REIT’s assets may be composed of the shares of any single Operating Company.
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