Unpacking The Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) are regulated collective investment vehicles which invest in real estate. REITs promoters source funds to build or acquire real estate assets, which they sell or rent to generate income.

The income generated is then distributed to the investors as returns in investing in REITs. The property is held by a trustee on behalf of unitholders and professionally managed by a REIT manager.

To help improve accountability and transparency within the REIT structure, there are four key parties who all work together to ensure that REITs’ interests are fully protected.

1. The Promoter: This is an individual or parties involved in setting up a real estate investment trust scheme. The promoter is regarded as the initial issuer of REIT securities and is involved in making a submission to the regulatory authorities to seek approval of a draft trust deed, draft prospectus, or an offering memorandum.

2. The 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.

3. The Trustee: This is a corporation or a company that has been appointed under a trust deed and is licensed by the regulatory authorities to hold the real estate assets on behalf of investors. TheTrustee’s main role is to act on behalf of beneficiaries, usually 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.

4. Project/Property Manager: The role of the project manager is to oversee the planning and delivery of the construction projects in the REITs. The property manager on the other hand plays the role of managing the completed real estate development that has been acquired by the REIT.

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There are three main types of REITs and they include:

1. Income Real Estate Investment Trusts (I-REITs): This is a real estate trust that primarily derives its revenues from rental properties. The investors gain through rental income and capital appreciation form the investments undertaken.

2. Development Real Estate Investment Trust (D-REITs): This is a type of real estate trust where resources are pooled together for purposes of developing of real estate projects. Once a development has been completed, a D-REIT may be converted to an I-REIT and here the investors may choose to either re-invest their funds, sell, lease their shares or they can choose to sale the developments that have been undertaken.

3. Islamic Real Estate Investment Trusts: This is a unique type of REITs which only undertakes Shari’ah compliant activities. A fund manager is required to do a compliance test before making an investment in this type of REIT to ensure it is Shari’ah compliant.

The regulatory framework, REITs was launched in Kenya in 2013, thus 8 years since inception in the Kenyan market.

The REITs market has remained underdeveloped with only one I-REIT, and no D-REIT with the Fusion Capital D REIT, which was launched in 2016, having failed due to low subscription rates and the Cytonn D-REIT having failed due to conflicts of interest by the prospective bank Trustee.

The current licensed REITs managers are 10 following the licensing of Acorn Investment Management by CMA in late 2020.

Other examples of REIT managers in Kenya are;

1. Cytonn Asset Managers Limited (CAML)

2. Arcon Investment Management

3. Stanlib Kenya Limited Nabo Capital

4. ICEA Lion Asset Managers Limited

5. Fusion Investment Management Limited

6. H.F Development and Investment Limited,

7. Sterling REIT Asset Management

8. Britam Asset Managers Limited

9. CIC Asset Management Limited

Generally, REITs are a good investment option as they provide investors the opportunity to participate in real estate projects.

For Kenya, REITs are still at the initial stages with only one being listed, the Fahari IREIT. One of the main factors affecting the performance of the REITs market is minimal investor knowledge on the instrument.

However, the REITs market in Kenya has a potential for growth with increased government support, and public sector sensitization of the REITs.