REITs: Nigeria’s Investment Gateway

A REIT lets everyday investors own a slice of income-generating real estate (like malls, offices, or housing) by pooling money together. In Nigeria, REITs are listed on the Nigerian Exchange (NGX) and trade like any stock through your broker. Instead of buying a whole building, you buy “units” (shares) in a fund that buys properties.

The REIT collects rent and pays most of its profit back to unit holders (investors) as dividends. Because a REIT holds many properties, even small investors can benefit from large projects without managing them directly.

KEY TERMS SPECIFIED

1. Dividends: Cash payouts from the REIT’s rental profits. Think of them as your share of the income. Nigerian REITs often guarantee regular dividends and usually pay a very high percentage of profits (e.g., UPDC REIT pays about 90% of net income).

2. Unit holders: Investors who own REIT shares. You are a unit holder if you buy units of a REIT; it’s like being a shareholder in a company.

3. Trustee: An independent custodian (often a bank) appointed to hold the REIT’s properties “in trust” and ensure the fund manager follows the rules (trust deed). The trustee reports to regulators, safeguarding investors’ interests.

4. Fund Manager: The company or team running the REIT day-to-day. They choose which properties to buy or sell, collect rent, and handle maintenance. They must follow the SEC-approved trust deed and investment rules.

HOW NIGERIA’S REITS WORKS

1. Pooled Investment: Many investors’ money is pooled into the REIT to buy and manage properties. This pool buys commercial real estate (offices, retail, hotels, etc.) or residential buildings. The idea is to spread risk across multiple properties.

2. Trade on the Exchange: Units of the REIT are traded on NGX (formerly NSE). You buy or sell REIT units through a stockbroker just like any other stock. There is no big minimum investment; you can enter with just one unit if you want.

3. Earning Income: The REIT collects rent or mortgage interest from its properties. That money (minus costs) becomes distributable profits. By law, a REIT must pay out the bulk of its rental and dividend income to unit holders. Typically, at least 75–90% of profits are paid out each year. The remaining (if any) may be kept for new investments.

4. Dividends: As a unit holder, you receive dividend payments (usually quarterly or biannually). Nigerian REITs are known for steady dividends; they often continue paying even if the overall market tumbles. These payouts make REITs attractive for income-focused investors.

REGULATION AND COMPLIANCE

REITs in Nigeria operate under strict rules enforced by the SEC (Securities and Exchange Commission) and the NGX exchange. By law, every REIT is a Collective Investment Scheme under the Investment and Securities Act, so it must be registered with the SEC. Key requirements include:

1. Listing Rules: A REIT must prepare a detailed prospectus, appoint a trustee, and meet NGX listing criteria (minimum size, share float, audited accounts, etc.). The NGX Rulebook also requires the trust deed to spell out how units are priced, how dividends are calculated, and that no promotional ads hide the true yield.

2. Investment Limits: SEC rules require most REITs (especially closed-ended ones) to keep ≥75–80% of assets in real estate or mortgages. They also limit single-asset holdings and foreign investments. For example, no one property can be more than 20% of the REIT’s portfolio.

3. Mandatory Distributions: A Nigerian REIT must distribute at least 75% of its net rental/dividend income each year. (In practice, many REITs aim for ~90%.) If a REIT fails to pay out enough, the SEC can deregister it.

4. Reporting and Oversight: REIT fund managers must file quarterly financial reports, and trustees file half-yearly reports to the SEC. A registered real estate valuer also reports annually on the property values. A compliance officer (often required for the REIT manager) ensures all rules are followed.

In short, the legal framework means Nigerian REITs are highly transparent. The SEC and NGX watch these funds closely to protect unit holders (investors). That said, investors should still read the REIT’s prospectus and financial statements to understand the strategy and risk.

TAX ADVANTAGES FOR INVESTORS

One big perk of Nigerian REITs is tax breaks built into the law. Under the Companies Income Tax Act, a REIT (called a Real Estate Investment Company) generally pays no corporate tax on its rental/dividend income, provided it distributes enough to investors. Specifically, if at least ~75–90% of rental or dividend income is paid out within the year, that income is tax-exempt at the company level. This “pass-through” status avoids double taxation. (If a REIT fails to distribute in time, the undistributed portion becomes taxable.)

For you as an investor, dividends from a REIT are then taxed at your rate, which may be lower than other income. In practice, REITs encourage high payouts so both the fund and its investors can benefit from these tax rules. As a result, REIT dividends can be quite attractive after tax. (Keep in mind, property gains on sale of assets can incur Capital Gains Tax, but ordinary rental income distributed is largely shielded from corporate tax.)

EXAMPLES OF NIGERIAN REIT

Nigeria currently has several listed REITs. A few to know are:

1. UPDC REIT: Run by UPDC (UACN Property Development Company), this is Nigeria’s largest listed REIT by asset value. It owns over 100 properties in Lagos and Abuja (offices, malls, hotels, etc.). UPDC REIT’s strategy is to pay out steady cash distributions; in fact, it pays about 90% of its net income as dividends each year. https://www.asktraders.com/learn-to-trade/ngx/best-real-estate-stocks/

2. Union Homes REIT: Managed by Union Homes Savings & Loans (a Union Bank subsidiary), this closed-ended REIT focuses on mortgage and residential properties. Established in 2008, it ensures that≥80% of its assets are real estate. It’s known for long-term capital growth and steady payouts. https://www.asktraders.com/learn-to-trade/ngx/best-real-estate-stocks/

3. SFS REIT: This is a specialized office-property REIT (originally Skye Shelter Fund). It owns prime commercial buildings mainly in Lagos and Abuja. As a closed-ended fund, it has a set wind-up date, but meanwhile, it rents out offices and distributes the income. https://crowdsq.com/blog/203/best-real-estate-investment-trusts-reits-in-nigeria-navigating-the-dynamic-market

4. Starcrest REIT (formerly Crowdy Village): One of the earliest Nigerian REITs, focused on mixed housing projects and education complexes. (Note: this example illustrates variety, even if specific data isn’t cited here.)

There are also newer funds and funds-of-REITs in development. Each REIT will have a different mix of properties, risk profile, and distribution history. Always check a REIT’s track record – some publish monthly rental yield stats – before investing.

PRACTICAL TIPS FOR INVESTORS

1. Use a Stockbroker: To buy REIT units, open an account with an SEC-registered broker. You’ll trade REIT units like stocks on the NGX.

2. Diversify: Just like real estate, different sectors (residential vs commercial) and locations carry different risks. Consider spreading your investment across multiple REITs (or other asset classes) for balance.

3. Check Payout History: Look at how much dividend the REIT has paid in the past 1–3 years. Reliable REITs usually pay out a large share of their profit each year. If a REIT’s dividends have been erratic, ask why.

4. Read the Trust Deed: The trust deed is the legal document that sets out how the REIT operates (how units are valued, how dividends are set, etc.). Key things to note: asset mix rules, how often they pay dividends, and any limits on borrowing or new developments.

5. Understand Fees: REITs have management fees and trustee fees. Check these costs in the REIT’s prospectus, as they reduce your net return.

6. Monitor Regulatory News: The SEC occasionally updates rules (e.g., as it did in 2024). Stay informed about any new SEC or NGX announcements affecting REITs.

7. Beware Market Risk: REIT share prices can rise and fall with interest rates and property cycles. Even though they offer dividends, REITs are not risk-free. Think long-term, and don’t invest money you may need urgently.

SUMMARY CHECKLISTS

1. Easy access to real estate: REITs let you invest in big properties through the stock market.

2. Trading on NGX: You buy/sell REIT units on the Nigerian Exchange just like any share.

3. Role of SEC/NGX: SEC oversees REITs under the Investment & Securities Act; NGX enforces listing rules (trust deed, disclosure, etc.).

4. Mandatory payouts: By law, REITs must distribute at least 75% of income each year (often ~90%). Failing this can mean SEC deregistration.

5. Tax benefits: If properly structured, REIT income is mostly tax-exempt at the corporate level. Investors pay tax on dividends, often at favorable rates.

6. Key terms: Unit holders are you as an investor; the trustee safeguards the portfolio; the fund manager runs the properties.

Examples: UPDC REIT (commercial focus, ~90% payout); Union Homes REIT (housing/mortgages); SFS REIT (offices).

7. Due diligence: Review the REIT’s prospectus, financials, and dividend history. Use a licensed broker and diversify across sectors.

By understanding these points, both new and experienced investors can confidently navigate Nigeria’s REIT market. With clear rules and attractive tax perks, REITs can be a practical way to get real estate exposure, just keep an eye on market conditions and regulatory requirements.