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Malta Stock Exchange issues Market Consultation Document on Real Estate Investment Trusts (“REITS”)

Real Estate Investment Trusts (“REITs”) refer to companies managing and owning a diversified portfolio of properties.  Such companies receive income through rental payments, and this is in turn distributed to investors who also stand to gain from the long-term appreciation of properties within the company’s portfolio. Following the initial announcement in the 2019 Budget, Malta is set to begin to roll out its regulatory framework for REITs.

In this aspect, the Malta Stock Exchange is issuing a consultation document in order to allow relevant market operators and stakeholders to provide feedback, comment and submit other contributions to the draft bye-laws being proposed below. These bye-laws are intended to allow REITs to become eligible financial instruments that may be admitted to the Exchange for listings in terms of Chapter 5 of the Bye-Laws of the Malta Stock Exchange.

Eligibility for Listing

The consultation document specifies that in order for an issuer to be eligible to be admitted by the Exchange for listing as a REIT, in addition to the requirements already laid down in Chapter 5 of the bye-laws, the Issuer has to provide to the Exchange, a report issued by an Auditor, before the beginning of each accounting period for which the Issuer can be eligible to be admitted as a REIT, and specifying a date upon which a number of conditions can be met.

Property Rental Business

For the purposes of eligibility as a REIT, property rental business is required to be segregated from all other income of the issuer which is not derived from property rental business and shall be treated as though it has been earned by a separate company.

Disposal of Assets and Raising of New Capital

It is being proposed that where a REIT acquires an asset which is used for the purposes of its Property Rental Business and following that acquisition:

  • the asset is developed and the cost of such development exceeds thirty per cent (30%) of the market value of the asset at the date of commencement of the development; and
  • the asset is disposed of within a period of three (3) years from the completion of the development then, the profits arising from such disposal shall not be deemed to arise from the property rental business

Ongoing Eligibility

The consultation document proposes that every Issuer receiving a confirmation from the Exchange relative to its eligibility as a REIT shall in respect of each accounting period, by not later than three months from the year following that in which the accounting period ends make a statement to the exchange confirming that the provisions of the bye-laws have been complied with during the accounting period under review.

Article written by Dr Cherise Abela Grech and Dr Luke Mizzi.

For more information on Capital Markets please  contact Dr Ian Gauci on igauci@gtgadvocates.com Dr Cherise Abela Grech on cabelagrech@gtgadvocates.com and Dr Luke Mizzi on lmizzi@gtgadvocates.com

This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.