A REIT is a regulated collective investment vehicle that enables persons to contribute money’s worth as consideration for the acquisition of rights or interests in a trust that is divided into units with the intention of earning profits or income from real estate as beneficiaries of the trust.
Types of REITs
There are three main types of REITs and they include:
- Development Real Estate Investment Trusts (D-REITs): A D-REIT is a type of REIT in which investors pool their capital together for purposes of acquiring real estate with a view to undertaking development and construction projects and associated activities.
- Income Real Estate Investment Trust (I-REITs): An I-REIT is a type of REIT in which the investors pool their capital for purposes of acquiring long term income generating real estate including housing, commercial and other real estate.
- 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.
Advantages of REITS
- Long Term Returns- REITs offer investors competitive returns as their performance is based on the performance underlying real estate assets in the REIT structure,
- Liquidity-REITs offer investors’ enhanced liquidity compared to direct ownership of real estate assets. REITs thus enable investors to easily buy and sell units in a trust which has invested in real estate assets.
- Consistent Income Stream– REIT structures specifically income REITs are mandated by the law to distribute at least 80% of their net after tax profits to their unit holders as dividends. This can provide a stable and consistent form of income annually for unit holders.
- Diversification– When combined with other asset classes, REITs provide a unique diversification tool when incorporated in an investment portfolio.
- Tax Benefits– REITs enjoy various tax considerations making them an attractive asset class for investors. REITs are exempt from income tax except for payment of withholding tax on interest income and dividends. Equally, REITs are exempt from stamp duty, value added tax as well as capital gain tax in some instances.
Parties involved in REITS
- Promoter– This is party 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 submissions to the regulatory authorities to seek relevant approvals.
- 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.
- Trustee: 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.
- Project/Property Manager: The role of the project manager is to oversee the planning and delivery of the construction projects in the REITs.
Current Issuers in the market?
| Issuer | Name | Type of REIT | Listing Date | |
| 1. | ILAM | Fahari | I-REIT | October 2015 |
| 2. | Acorn Holdings Limited | Acorn ASA | I-REIT | February 2021 |
| 3. | Acorn Holdings Limited | Acorn ASA | D-REIT | February 2021 |