REITs function by allowing investors to contribute funds in exchange for rights or interests in a trust, which is divided into units. These units can be bought and sold on the stock market, making it easier for investors to enter and exit the market. The funds collected are used to build or acquire real estate properties, which are then rented out or sold to generate income. At the end of each fiscal year, the income generated is distributed to shareholders as dividends, providing them with a return on their investment.
The operation and success of REITs rely on the collaboration of four key parties, each playing a crucial role in ensuring the protection of investor interests and promoting transparency and accountability within the REIT structure.
- The Promoter
The promoter is responsible for setting up the REIT scheme. This involves being the initial issuer of REIT securities and making submissions to regulatory authorities to obtain the necessary approvals for the trust deed, prospectus, or offering memorandum. Examples in Kenya: Notable REIT promoters in Kenya include Acorn Holdings Limited and LAP Trust.
- The REIT Manager
The REIT Manager is a company licensed by the Capital Markets Authority (CMA) to provide real estate and fund management services on behalf of investors. The manager oversees the daily operations, including property acquisition, management, and disposal, ensuring the REIT’s assets generate the desired returns. Examples in Kenya: There are currently 11 licensed REIT Managers, Mi Vida being the latest REIT manager, others include Cytonn Asset Managers Limited (CAML), Acorn Investment Management, Stanlib Kenya Limited, Nabo Capital, ICEA Lion Asset Managers Limited, Fusion Investment Management Limited, H.F Development and Investment Limited, Sterling REIT Asset Management, Britam Asset Managers Limited, and CIC Asset Management Limited.
- The Trustee
Appointed under a trust deed and licensed by the CMA, the trustee holds the real estate assets on behalf of the investors. The trustee acts in the investors’ best interests by evaluating the feasibility of investment proposals from the REIT Manager and ensuring that investments are made according to the trust deed.Examples in Kenya: Prominent REIT trustees in Kenya include Kenya Commercial Bank (KCB), Co-operative Bank (Coop), Housing Finance Bank, and NCBA Bank Kenya.
- Project/Property Manager
The project manager oversees the planning and delivery of construction projects within the REIT. Once the development is complete, the property manager takes over, focusing on managing the real estate assets to maximize profitability. This includes maintaining high occupancy rates and stable rental income to ensure consistent returns for investors.
Consider the example of a REIT acquiring properties like Qwetu Aberdare Heights II. Before their transfer to the REIT, these properties were experiencing increasing occupancy rates and rental income, making them attractive investments. The REIT Manager ensures that these properties continue to generate income, which is then distributed to investors as dividends.
REITs continue to offer a structured and regulated way for investors to participate in the real estate market without the complexities of direct property ownership. By pooling resources, REITs can undertake real estate projects, generating income that is shared among investors. The involvement of promoters, REIT managers, trustees, and property managers ensures that investor interests are protected and that the operations remain transparent and accountable, making REITs a viable and attractive investment option in Kenya’s growing real estate market.
