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IntermediateBrazilian REITs · Lesson I2.1 · Module I2

Allowed and forbidden: the REIT portfolio

Module I2: What the fund can (and can't) do

10 slides~4 minquiz at the end

In this lesson

  • The assets a REIT may hold
  • The prohibitions that protect holders
  • Rules, bylaws and manager
See the slides
Supermarket aisle with full shelves

Brazilian REITs · Lesson I2.1

The manager's cart has limits

What a REIT may buy, what is forbidden and who writes those rules.

Wilfredor · Wikimedia Commons · CC BY-SA 4.0

The "allowed" shelf

What a REIT may buy

  • Real estateand property rights over them
  • CRI, LCI, LH, LIGreal estate credit notes
  • Other REITs' sharesand real estate receivables funds
  • Stocks and SPVsof real estate companies
  • CEPACbuilding rights certificate
  • Cash in fixed incomewhile waiting or as a reserve

CVM Res. 175, Annex III, arts. 40 and 41 (short list).

Behind the glass

What the rules forbid

ForbiddenWhy it matters
Incomepromising income to holdersREIT income is never guaranteed
Abroadinvesting abroad money raised herethe risk stays in Brazil
Conflictdealing with related parties without a voteholders must approve
Derivativesusing them to speculateonly to hedge the portfolio

Annex III, art. 32, and general part, art. 101 (it also bars borrowing, with exceptions, and selling shares in installments).

Do the math

R$ 25M idle in a R$ 500M fund

Tesouro Selic

Allowed

  • 5% of equity as a liquidity reserve
  • liquid fixed income (art. 41)

US REIT

Forbidden

  • investing abroad with money raised in Brazil

Three layers of rules

The rules are the ceiling, the bylaws the fence

Law and CVMwhat any REIT may hold
The fund's bylawswhat THIS fund may hold
Managerchooses inside the fence

The rules allow CRIs, but a warehouse fund may forbid them in its bylaws.

The misconception

Is "guaranteed minimum rent" forbidden?

The fund promises you

  • forbidden: no one guarantees income to holders

The seller promises the fund

  • allowed: a contractual minimum rent
  • depends on the seller paying, and it ends

Remember this

Three ideas from this lesson

  1. A closed listProperty, real estate securities, fund shares and cash.
  2. Behind glassNo foreign assets, promised income or speculative derivatives.
  3. The bylaws tighten itThe manager chooses within the fund's policy.

Quick quiz · 1 of 2

May a REIT keep cash in fixed income while waiting to buy?

See answer

Yes. Annex III, art. 41, allows cash in liquid fixed income or funds, even as a permanent reserve.

Quick quiz · 2 of 2

The seller guarantees the fund a minimum rent for 2 years. So what?

See answer

Allowed, with an end date. What is forbidden is the fund promising income to holders. The seller's guarantee is the seller's credit risk.

Lesson complete

Next lesson

I2.2Intermediate · Lesson I2.2The 95% rule: cash, not accountingThe fund pays out on cash that came in — revaluation does not count.Continue
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Educational content, written for learners. Not investment advice.