Frequently Asked Questions

REITs are governed by the Capital Markets Authority (CMA) under the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations, 2013 and Capital Markets Act Cap. 485A.

The key players in REIT are: promoter, REIT manager, Trustee and property/project manager

• Promoter–The promoter is regarded as the initial issuer of REIT securities and is involved in making submissions to the regulatory authorities to seek relevant approvals. This is the party involved in setting up a real estate investment trust scheme.
• Trustee: A company or corporation appointed under a trust deed and licensed by the Authority to hold the real estate assets on behalf of all the investors. The Trustee’s main role is to act on behalf of the investors in the REIT, by assessing the feasibility of the investment proposal put forward by the REIT Manager and ensuring that the assets of the scheme are invested in accordance with the Trust Deed.
• REIT Manager: This is a company that has been incorporated in Kenya and has been issued a license by the authority (CMA) to provide real estate management and fund management services for a REIT scheme on behalf of investors.
• Project/Property Manager: The role of the project manager is to oversee the planning and delivery of the construction projects in the REITs, while the property manager is involved in the day to day running of an income generating real estate on behalf of the REIT manager.

1. Income Real Estate Investment Trust or “I-REIT”: A real estate trust that primarily derives its revenues from property rentals.
2. Development Real Estate Investment Trust or “D-REIT”: A real estate that principally involved in development and construction for sale or/and rental.
3. Islamic Real Estate Investment Trust – A real estate trust that primarily invests in income producing Sharia compliant real estate.

A document which establishes or sets out the terms of the trust creating the REIT and includes any document that varies the terms of the trust, the rights of the beneficiary and the powers of the trustee or manager.

REITs have the following characteristics:

1. Trade publicly on a securities exchange.
2. Listed REITS may be sold in an Initial Public Offer (IPO).
3. Are made up of a pool of money accumulated from many investors looking for a diversified real estate (similar to unit trusts) portfolio.
4. Can be restricted or restricted I-REIT

There is no regulatory minimum amount of investments for investors investing in unrestricted I-REITs. However, a minimum investment of Kshs.5 million required for an investor to qualify to be categorized as a professional investor for purposes of investment in a D-REIT or restricted I-REIT.

Professional investor- Any person licensed under the Capital Markets Act; or an authorized collective investment scheme; or a bank or subsidiary of a bank, insurance company, cooperative, statutory fund, pension or retirement fund or a company, partnership, association or a trustee on behalf of a trust which, either alone, or with any associates on a joint account subscribes for REIT securities with an issue price equal to at least five million shillings.

A minimum of 7 investors in both D-REIT and I-REIT.

1. Diversification: REITs offers flexibility where investors can build portfolios of custom REIT portfolio based on cap size, sector and geographic exposures.
2. Transparency: REITs are registered and regulated by the securities markets regulators and adhere to high standards of corporate governance, financial reporting and information disclosure.
3. Liquidity: REITs listed on securities exchange can make real estate investing easy and efficient, due to market liquidity, as compared to selling the property in the property market.
4. Consistent income: I-REITs are by law required to pay out at least 80% of its taxable income to their unit-holders in the form of dividends. Consequently, REITs tend to generate a stable and consistent income stream for investors.
5. Access to new capital: REITs provide a mechanism to pool capital for investment into capital intensive long-term income producing real estate projects to which supplements other capital raising avenues.
6. Income distribution: All distributions of income and all payments for the redemption of units or sale of shares received by unit holders will be deemed to have been already paid.

1. The minimum size of initial assets for income REITs is Ksh.300 Million.
2. The minimum size of initial assets for Development and Construction REITs is Ksh.100 Million.

1. Property must be held in trust and professionally managed by a REIT manager.
2. The Trustee must be independent of the promoter.
3. Only persons qualifying as professional investors in D-REITs qualify to invest in restricted I-REITs.
4. If unrestricted, offer must be listed on an approved exchange (for instance Nairobi Securities Exchange (NSE).
5. If a restricted offer may only be listed but only on restricted exchange as per D-REIT, made to professional investors.
6. An I-REIT should invest, within two years of the date of its authorization as a real estate investment trust scheme, at least 75% of the total net asset value in income producing real estate.
7. The investment must be an income generating real estate property.
8. At least 1(one) investment within 180 days of close of the offer or cash will be returned in full to the investors. During this period, funds to be held in trust account controlled by the trustee until registration.
9. Must be wholly owned and controlled company/corporation conducting real estate business.
10. May borrow up to 35% of the total asset value and up to 40% of the total asset value with approval of the unit holders by way of an ordinary resolution for a temporary period of up to 6 months. No extension is permitted.
11. After the second year of authorization, at least 70% of the income must come from eligible investments in income producing real estate.

1. Property must be held in trust and professionally managed by a REIT manager.
2. The trustee must be independent of the promoter.
3. May only be listed on an approved market segment of approved licensed securities exchange which limits trades to minimum of Ksh.5 million and the investors to professional investors.
4. Should only be offered to professional investors and does not need to be listed on a securities exchange.
5. Direct investments in real estate with at least 1(one) investment within 180 days of close of the offer or else 25% of the unit holders may request the return of cash.
6. A minimum 30% to be invested in development and construction projects or income producing real estate within a year of authorization which the D-REIT has constructed or developed.
7. May borrow up to 60% of the asset value or up to 75% of total asset value with approval of unit holders, by way of an ordinary resolution, for temporary period of up to 6 months.
8. What are the eligibility requirements to offer a real estate trust for Development REITS (D-REITS) in Kenya?

Yes, it may convert to an I-REIT after the property has been developed.

Yes. According to section 70 of the Capital Markets (REIT) (Collective Investment Scheme) Regulations, 2013:

The Trustee of an I-REIT on the recommendation of a REIT manager and subject to the limiting conditions of the scheme documents can acquire a real estate under construction, vacant land for development or carry out construction on vacant land for purposes of development provided that:

1. Total value of the land and cost of construction or cost of acquisition of real estate under construction does not exceed 15% of total asset value.
2. Total value at acquisition, cost of vacant land held for development/construction by the I-REIT and the value of real estate that is not producing a commercial income at any time does not exceed 10% of the total asset value.
3. Vacant land acquired by the I-REIT for development/construction shall only be held for a maximum period of 3 years, after which it shall be developed and generate commercial income or sold.
4. Incomes from other assets are sufficient to ensure that earnings of the fund per unit are not substantially diluted during the construction/development period.
5. The contract for nay acquisition of property under construction is subject to the completion of the building and for an agreed fixed price.
6. The REIT manager reasonably believes that the prospects for obtaining tenants for any property being developed at a commercial rent are good.
7. Development contracts are carried out on the best available terms and at arm’s length transactions.

1. For D-REITS, a promoter must maintain an investment of at least 10% of the value of the fund as at the date of the issue of units for 2 years. Thereafter, the promoter may reduce its investment to 0%.
2. For I-REITS, a promoter must maintain investment of the value of the fund as at date of the initial issue of units of 20% Net Asset Value for the first year and 10% for the second. Thereafter, the promoter may reduce its investment to 0%.

Below are some of the tax treatments with regards to REITs:

1. REITS registered by the Commissioner of Income Tax are exempt from Income Tax except for the payment of withholding tax on interest income and dividends.
2. Income of exempt investors remains exempt.
3. Withholding tax constitutes final tax on that income.

Yes. A REIT can be terminated on the following grounds:

1. Where the authority revokes the authorization of a REIT and applies to the Court for the appointment of a person to wind up the REIT.
2. The Trustee can initiate the process of revocation of an authorization, and apply to the Authority for the termination of the REIT.
3. The Trustee, REIT manger or any REIT securities holder may make an application to Court for an order to wind up the REIT. Prior to making this application to Court, a notice should be given to the Authority (CMA) and REIT securities holder by the Trustee or REIT manager and the grounds for making the application.