THE CONCEPT AND BENEFITS OF REAL ESTATE INVESTMENTTRUSTS

(REITS)

These are regulated investment channels allowing collective real estate investment.  Investors come together and pool funds in a trust to earn profits or income from real estate. 

REITS source funds to acquire and generate income from real estate assets. REITs are regulated by the Capital Markets(Real Estate Investment Trusts)(Collective Investment Schemes) Regulations 2013.

Under Regulation 8, REITS are categorized into:

              -  Development Real Estate Investment Trusts(D-REITS) - Here, the trustees acquire Land,

                  develop it, and sell it at a profit.


              -  Income Real Estate Investment Trusts (I-REITS)- The Trusts acquires already developed 

                   property, or develop it for purposes of generating rental income.

ISLAMIC REIT is also provided for under the regulation, where it primarily invests in income producing shariah compliant real Estate models.


REQUIREMENTS FOR LICENSING.

In D-REITs model, a minimum of seven investors and a minimum value of the initial Assets must be Ksh.100,000,000.

In I-REITs Model, the minimum value of the initial Assets should be ksh.300,000,000.


STAKEHOLDERS IN THE REITs INDUSTRY.

PROMOTERS- They are the initial propagators and issuers of the REITs. 

REIT TRUSTEES; Hold the property on behalf of the beneficiaries (individual and corporate investors). They also act as representatives of the investors within the scheme.

REIT Manager- They are a registered company licensed by the Capital Markets Authority, entrusted with the responsibility of providing real estate and fund management services on behalf of the investors in the scheme.

TRUSTEE also ensures that the scheme's assets are invested in alignment with the Trust deed and offering Memorandum. It requires overseeing that the distributions from the REIT assets adhere to the guidelines outlined in the offering memorandum as approved by the Capital Markets Authority.

Therefore, investment properties are registered in the name of a corporate trustee serving as the custodian of the REIT assets, while management is entrusted to a corporate REIT Manager.


GUIDELINES ON INVESTING IN A REIT.

Due diligence is paramount for any investor looking to invest in a REIT. Once you have established your taste, and what attracts you, based on your investment goals and risk tolerance, additionally you ought to seek out the following:

1. Legal Due Diligence- Substance should be placed on the REIT legal formation and whether each and every aspect of the REIT is perfectly within the regulatory licenses and approvals.

2. Yield- An investor's eye is normally fixated on the expectations based on the rates of return. A reasonably high yield backed by proper management and regulatory environment is encouraged.

3. Previous Performance- Where you are dealing with an existing REIT, you need to analyze the history of their performance before investing.

4. Occupancy rates - This applies to I-REIT which depends on revenue generated the rate of occupancy in the project invested in at the moment is key.

5. Debt Levels- the regulations place a restriction on the debt accumulation levels by REITS. An exemption of the REIT debt burden is crucial to inform an investor.

6. Quality of management- A REIT is only as good and successful as its management.

7. Trends in the economy; and 

8. Liquidity of the REIT.


ADVANTAGES OF REITS

Creates an avenue for pooling together funds from different investors which in turn has a massive impact on the type of project envisioned and the outcome thereof.

Generates income and capital gains from the real estate which are distributed to the investors as dividends.

Income Tax exemption, Value Added Tax, and Stamp duty exemption.

Adds to the portfolio diversification of the investor for the investments made.

There is a level of reassurance due to the professional management, transparency, and regulation by the Capital Markets Authority. 


DISCLAIMER:- This article is not meant to be construed as a legal opinion or advise, but for information purposes only. For any legal advice or consultation kindly contact; Wakili Wangu Kimure 

0716912966; kellenkimure@gmail.com

 

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