29.1.2007

REITs: An Opportunity for Investment With Increasing Popularity

Until recently an exotic opportunity for some, mainly financial investors, Bulgarian real estate special investment purpose vehicles (Reits) quickly grew in number and by the volume of assets they manage. And they became so popular that even became a little bit boring for the capital market.
Only 13 in the beginning of 2006, in the year-end their number reached 34 and keeps growing. The assets of all special investments purpose companies including those investing in receipts grew four times to BGN 551 m on an annual basis but mostly under the influence of the real estate companies. With a ratio one to two between raised and attracted capital this means they could realize projects of over a billion leva for the two-three years to come.
The Bulgarian special investment purpose companies are relatively small especially if compared to the money raised by companies registered abroad, ready to be invested in real estate in the region. One fund alone managed to raise in London an amount of money almost equal to the funds raised by all Bulgarian REITs in the two years and a half by Sept. 2006.
Anyway, the largest already manage significant funds for the local market that presently allow them to set up well balanced portfolios of investments in different real estate assets. The largest one, the Bulgarian Real Estate Fund, has projects for office, retail and residential development, as well as completed, leased and income generating buildings.
The second by the order of licensing, Benchmark Fund Estates, although with less funds raised, secured land for residential and office development starting with the acquisition of a completed building leased to retailers in Plovdiv. Like many others of the remaining trusts the company launches capital increases for a specific project. So far, it has managed to buy plots on key locations in Sofia, Borovets and Kyustendil with the intention to build office and retail building, holiday complex and a hotel respectively.
The rest cannot boast of much more. The first special investment purpose company Prime Property BG that started under the name TBI BAC Real Estate Investment Trust currently owns several development plots in central locations in Sofia and on the Black Sea coast as well as an office building in the capital city center that was built and is fully leased.
Most of the others, expect for REITs investing in agricultural land, have between one and three or four projects, mostly small to medium.
The purpose of some of them (maybe even to most of them) is to take advantage of the tax discounts for concrete projects or investments. Although they are public, by the law there are no restrictions for the share of the majority shareholder and the affiliated persons save the clause that at least 30 per cent of the founding capital to be underwritten by an institutional investor – a bank, an insurance company, a pension or an investment fund or a holding under the control of the Commission for Financial Supervision.
This means that the founders themselves have the opportunity tu buy out the rights for any capital increase without trading their shares. In fact not more than 10 to 15 of all trusts have been actively traded on the stock exchange.
Besides they are still not considered an investment alternative by foreign investors. The Commission for Financial Supervision estimates their share in the market capitalization of REITs to about 23 per cent. Private Bulgarian companies and local institutional investors hold the rest, most of them pension funds and mutual funds.

THE BULGARIAN PROPERTY INDEX MAGAZINE