Kenyan legislation

The Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations

Edition: 2023-10-06 · In force

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Part I – PRELIMINARY

1. Citation

These Regulations may be cited as the Capital Markets (Real Estate Investment Trusts) (Collective Investment Scheme) Regulations.

2. Interpretation

In these Regulations, unless the context otherwise requires—"Act" means the Capital Markets Act (Cap. 485A);"Authority" means the Capital Markets Authority established under section 5 of the Act;"borrowing" means any financing arrangement in the nature of a debt, whether secured or unsecured, and includes the equivalent under Shariah law;"closed ended fund" means a fund or trust in which—

(a)a person invests by subscribing for an issue of REIT securities or by acquiring REIT securities in a secondary market;

(b)the value of the investment fluctuates over time as determined by market price for the REIT securities;

(c)the number of the REIT securities issued remains constant over time except where a new issue of REIT securities is made or there is a reduction in the capital of the fund initiated by the trustee or as a consequence of termination or winding up of the trust; and

(d)the REIT securities holder, except where there is a reduction in the capital of the fund initiated by the trustee or as a consequence of termination or winding up of the trust–

(i)is not entitled to require the trustee to redeem the REIT securities; and

(ii)may only exit the investment in the REIT securities by selling the units in a secondary market;

"compliance officer" means a person designated as such under regulation 53A of the Capital Markets (Licensing Requirements) (General) Regulations (L.N. 125/2002) and whose responsibilities and powers are specified under regulation 30 of the Capital Markets (Corporate Governance) (Market Intermediaries) Regulations (L.N. 144/2011);"connected person" or "connected party" in relation to a real estate investment trust scheme includes–

(a)a REIT manager;

(b)a valuer appointed to undertake a valuation of the scheme;

(c)the trustee;

(d)a substantial holder of REIT securities in the scheme;

(e)a director, a senior executive or an officer of any person under paragraph (a), (b) or (c);

(f)an associate of any person under paragraph (d) and (e);

(g)a controlling entity, a holding company, a subsidiary or an associated company of any person under paragraph (a) to (d);

"D-REIT" means a development and construction real estate investment trust which complies with the requirements of these Regulations;"D-REIT scheme" means a development and construction real estate investment trust scheme authorized as such by the Authority under regulation 18;"eligible investments" means the assets and other investments specified under regulation 65 in respect of an I-REIT and regulation 76 in respect of a D-REIT in which the trustee may invest;"eligible real estate" in respect of real estate situate in Kenya means only real estate where the form of tenure which applies to the land is–

(a)freehold and includes the shares in any management company and any common management company established in respect of the freehold title that have been or are transferred or acquired by the trustee at the same time; or

(b)leasehold in respect of which either a certificate of title or a certificate of lease has been issued or is a long-term lease, as defined in the Land Act (Cap. 280) which has a registered separate title number and where, in the case of each leasehold title—

(i)as at the latter of the date on which the leasehold is transferred to or acquired by the trustee, investee company or trustee of the investee trust and the date on which the scheme is authorized by the Authority, the leasehold has an unexpired residual term of at least twenty five years; and

(ii)the shares in the management company and any common management company established in respect of the leasehold have been or are transferred or acquired by the trustee at the same time; or

(c)issued under the Sectional Properties Act (No. 21 of 1987) (repealed)–

(i)as at the date on which it is transferred to or acquired by the trustee, investee company or trustee of the investee trust and the date on which the scheme is authorized by the Authority, there is an unexpired residual term of at least twenty five years; and

(ii)a Corporation has been constituted under section 17 of the Sectional Properties Act (repealed) in respect of the sectional plan registered under that Act;

"exempted real estate investment trust" means–

(a)a collective investment scheme authorized by the Authority other than a real estate investment trust scheme;

(b)a scheme that is prescribed by the Authority not to be a real estate investment trust scheme; or

(c)a trust, scheme, syndicate or arrangement which—

(i)does not involve an issue or offer to the public or a section of the public which complies with the conditions for a private offer as prescribed by the Authority and in respect of which the issuer which has not sought authorization under these Regulations as a real estate investment trust scheme;

(ii)is limited to members of a family group;

(iii)is a charitable trust; or

(iv)is established as a consequence of a disposition under a will or other testamentary instrument; and

(d)does not include–

(i)a statutory fund maintained under any law for the regulation of insurance in Kenya;

(ii)any pension or retirement fund established under or regulated by the laws of Kenya;

(iii)an arrangement regulated in Kenya by the law of partnership; or

(iv)a scheme which is operated as a co-operative and regulated under the laws of Kenya;

"expert" in respect of a matter or an opinion means a person whose profession, occupation, religious standing, expertise or reputation gives authority to a statement made by that person in relation to that matter;"free float" means REIT securities issued, offered or held by persons who are not connected with or associated with the promoter or the REIT manager;"fund" means all contributions of money or money's worth or other income or assets of a real estate investment trust from time to time including money borrowed or raised by the trustee for the purpose of the scheme and includes all amounts due and any rights of a manager, or of a trustee to institute an action against any person and the rights of the beneficiaries of the trust to institute an action against any party including a trustee;"IFRS" means the International Financial Reporting Standards issued from time to time by the International Accounting Standards Board as adopted in Kenya;"I-REIT" means an income real estate investment trust authorized as such by the Authority under these Regulations;"income real estate investment trust scheme"or "I-REIT scheme" means a real estate investment trust scheme authorized as such by the Authority under these Regulations;"independent auditor" means a person who—

(a)is qualified and registered as an auditor by the Institute of Certified Public Accountants of Kenya;

(b)holds a valid practicing certificate;

(c)is not an auditor of the trustee, promoter or the REIT manager;

(d)is not a director, officer, employee, shareholder or a partner of a person specified under paragraph (c); and

(e)is qualified for appointment as an auditor of a REIT under the Act or these Regulations;

"initial offer" means the first offer or issue of REIT securities made to persons other than to the promoter or to parties connected to the promoter or the REIT manager;"investor" means a holder of REIT securities who is a beneficiary under a trust deed;"initial public offering" in relation to REIT securities means the first unrestricted offering of I-REIT securities which are to be listed on an approved securities exchange;"investee company" means a company which meets the requirements of regulation 65 in respect of an I-REIT and regulation 76 in respect of a D-REIT;"investee trust" means a trust which meets the requirements of regulation 65 in respect of an I-RElT and regulation 76 in respect of a D-REIT;"issuer" means—

(a)in relation to the first issue of REIT securities made after the authorization of the real estate investment trust scheme, the promoter; and

(b)in relation to any subsequent issue or offer of REIT securities or in the case of a conversion as provided for under Regulation 86, the REIT manager at the time of issue, but does not include the trustee;

"lease" includes sub-lease;"listed" in relation to REIT securities, means REIT securities which are traded on an approved securities exchange in Kenya or any other exchange approved by the Authority;"lock in period" means a period, if any, in which the promoter is required to retain an investment in REIT securities;"MER" means the management expense ratio of the sum of fees and recoverable expenses of the real estate investment to the average value of the fund calculated on a daily basis—

		Fees of the fund+Recovered expenses of the fund X 100____________________________
		Average value of the fund calculatedon a daily basis
Where
Fees	=	all outgoing fees deducted or deductible directly from the funding respect of the period covered by the management expense ratio, expressed as a fixed amount, calculated on a daily basis and includes any management fee, the annual trustee fee and any other fees deducted or deductible directly from the fund

recoverable expenses	=	all expenses recovered from or changed to the fund as a result of the expenses incurred by the operation of the fund expressed as a fixed amount but should not include expenses that would otherwise have been incurred by an individual investor for example taxes ; and

Average value of the REIT securities	=	the Net Asset Value of the trust including net income value, less expenses on an accrued basis, for the period covered by the management expense ratio, calculated on a daily basis

"net asset value" means the value of all assets of the fund less the value of all liabilities of the trust, including trustee and management fees, as at the day the calculation is made;"net asset value per unit" or means the net asset value divided by the number of units of REIT securities issued and not redeemed on the day the calculation is made;"offering memorandum" means any notice, circular, material or advertisement, publication or other invitation issuing or offering for subscription, sale or purchase of any REIT security to a professional investor and includes a conversion offering memorandum or supplemental offering memorandum;"offeror" means a person who makes an offer of REIT securities and includes the issuer where the issuer makes the offer or requests or authorizes another person to make the offer but does not include the trustee;"open ended fund" means, subject to any limits on redemption that might be included in the scheme documents, a fund in which a person may invest from time to time by acquiring REIT securities and may dispose of the investment by having the REIT securities redeemed by the trustee and where the value of the investment and the redemption price per unit is determined by the net asset value per unit as calculated from time to time in accordance with the scheme documents and where the size of the fund may expand or contract as investors acquire or dispose REIT securities;"partial ownership" when used in connection with or in respect of land or real estate includes, any title or ownership or right or purported right to occupy or use land or real estate which is in the form of a co-tenancy as defined under the Land Act, 2012 (No. 6 of 2012), or where the ownership is in a partnership, a co-operative or other form of co-ownership whether formal or informal including by way of ownership of a share in a company which is not wholly owned and controlled or of a unit in a trust which is not wholly owned pursuant to a licence or easement or other form of joint or co-ownership but does not include–

(a)ownership of shares in a common management company where the share is held as a consequence of the holding of a freehold or leasehold title;

(b)a right in respect of common property arising out of a leasehold held under the Sectional Properties Act;

(c)a right under a lease, or licence of easement that arises as a consequence of the holding of freehold or leasehold title or which is established, for the benefit of that freehold or leasehold title or relates to plant and equipment or the use of a utility or infrastructure or natural resource for use in connection with the freehold or leasehold title; or

(d)where the assets are held jointly in the name of the trustee and a secondary disposition trustee;

"periodic reports" means–

(a)such reports as may be required to be prepared from time to time under the Act or these Regulations; and

(b)any other continuous disclosures which are required to be made in connection with or in relation to a real estate investment trust scheme;

"professional investor" means—

(a)any person licensed under the Act;

(b)an authorized scheme or collective investment scheme;

(c)a bank or subsidiary of a bank, insurance company, cooperative, statutory fund, pension or retirement fund; or

(d)a person including 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;

"promoter" means a person who–

(a)acts as a promoter;

(b)is nominated in the application for authorization to act as a promoter,

of a real estate investment trust or a real estate investment trust scheme but does not include an underwriter of an issue or offer of REIT securities who is paid a commission without otherwise taking part in the formation, establishment or organization of the real estate investment trust or scheme;"property manager" means a person appointed as such under regulation 55;"project manager certifier" means a person appointed as such under regulation 63;"prospectus" means any notice, circular, material or advertisement, publication or other invitation issuing or offering for subscription, sale or purchase of any REIT security which is capable of being accepted by any person who is not a professional investor and includes a supplemental prospectus or a conversion prospectus;"real estate" means land and includes—

(a)all things which are a natural part of the land or growing on the land;

(b)attachments above and below the land;

(c)things which are fixtures or are developed, installed or constructed on the land including buildings and site improvements;

(d)improvements and permanent building, plant and equipment or attachment including plumbing, heating and cooling systems, electrical wiring and built-in items including elevators which may be used in connection with the land; and

(e)all rights and interests attaching to the land;

"real estate investment trust" means a trust established in Kenya for investment in real estate but does not include an exempted real estate investment trust;"REIT assets" or "scheme assets" includes all assets of the REIT fund;"real estate investment trust scheme" or "REIT scheme" means an arrangement made or established for the purpose of collective investment by persons in real estate for the purpose of earning profits or income from real estate as beneficiaries of a trust which is divided into units in which—

(a)persons contribute money or money's worth as consideration to acquire rights or interests to gain the benefits from pooling of funds and the investment in real estate;

(b)the persons investing do not have the day-to-day control over the management of the assets of the real estate investment trust; and

(c)the assets are managed by an entity,

and includes such other arrangements as may be prescribed by the Authority to be a real estate investment trust scheme but does not include an exempted real estate investment trust;"register" means the register of REIT securities holders maintained by the trustee under regulation 50;"REIT" means a real estate investment trust;"REIT securities" means units in a trust which is a real estate investment trust or a real estate investment trust scheme;"REIT manager" means a company incorporated in Kenya and licensed by the Authority to provide real estate management services in respect of a REIT;"restricted offer" means an issue or an offer made to professional investors;"secondary disposition trustee" means an additional trustee appointed by theAuthority, the scheme documents or the trustee as a joint trustee with limited powers pursuant to Regulation 44;"securities" means any instrument defined as such under the Act and includes REIT securities;"scheme" means a real estate investment trust scheme;"scheme documents" include—

(a)the prospectus and offering memorandum, and includes any conversion or supplementary prospectus or offering memorandum;

(b)the trust deed and any amending, supplemental or replacement trust deed;

(c)any document appointing a REIT manager or setting out the terms of appointment and the role or obligations of a REIT manager;

(d)any document appointing a property manager, project manager certifier or structural engineer or setting out the terms of appointment, the role or obligations of such persons;

(e)any document described in paragraph (b), (c) or (d) relating to an investee trust; and

(f)the Memorandum and Articles of Association of any investee company and any shareholders' agreement including any amending, supplemental or replacement Memorandum and Articles of Association or shareholder's agreement;

"Shariah adviser" means a person appointed as such under regulation 122;"special resolution" means a resolution passed by a majority of not less than three-fourths of such holders of REIT securities being entitled to do so, vote in person or where proxies are permitted by proxy, at a general meeting of holders of REIT securities of which at least twenty one days written notice specifying the intention to propose the special resolution has been given;"substantial holder of REIT securities" means a person who holds fifteen percent or more of the issued REIT securities in a scheme, where for the purposes of calculating the fifteen percent, in addition to any REIT securities held by the holder, that person is also considered to be the holder of any REIT securities held by–

(a)an associate of a holder who is an individual; or

(b)a director, senior executive, officer, controlling entity, holding company, subsidiary or associated company of the holder, if the holder is an entity;

"structural engineer's report" means the report prepared and submitted to the REIT manager and trustees under regulation 62;"total asset value" or "TAV" means the value of all assets of the fund based on the most recent valuation;"transaction adviser" means a person appointed as such under regulation 32 and licensed under the Act;"trust" means a trust established under the laws of Kenya;"trust deed", in relation to a real estate investment trust scheme, means the trust deed or other document which establishes or sets out the terms of the trust and includes—

(a)any instrument that varies the terms of the trust or affects the powers or functions of the trustee or any manager appointed in respect of the trust; and

(b)any instrument that varies the rights of beneficiaries under the trust including the REIT securities holders;

"trustee" means a person appointed under the trust deed as a trustee of the real estate investment trust and any investee trust and includes any successor but shall not include, except where expressly stated, a secondary disposition trustee;"unit" means a REIT security being any undivided share, right, interest or entitlement in the assets of the real estate investment trust which is classified as a security under the Act;"unrestricted offer" means any issue or offer which is not a restricted offer;"valuation report" in respect of a real estate investment trust scheme, means a report made by a valuer;"valuer" for the purposes REIT securities, means a person appointed as a valuer under these Regulations to prepare or who is required to prepare a valuation report.

Part II – ESTABLISHMENT OF A REAL ESTATE INVESTMENT TRUST SCHEME

3. Scheme to comply with these Regulations

A person who intends to establish a trust, a scheme, an arrangement or any form of collective investment scheme as a real estate investment trust scheme shall not refer or call such trust, scheme, arrangement or collective investment scheme a real estate investment trust scheme unless the trust, scheme, arrangement or collect investment scheme—

(a)is declared, under regulation 18, to be an authorized scheme; and

(b)complies with the requirements of the Act and these Regulations.

4. Requirement for prior consent

(1)Where a promoter any person who is or proposes to vest in, sell, assign or transfer real estate to a real estate investment trust is regulated by another body or authority, that promoter or person shall obtain the consent of the body or authority prior to submitting an application for authorization as a real estate investment scheme to the Authority.

(2)A breach of paragraph (1) shall not operate to void any transaction entered into or prevent the trustee from pursuing any remedies the trustee may have against any other person but shall prevent any action by the other promoter or other party against the trustee for non-performance of any contract entered into in contravention of this provision.

5. Structure of a real estate investment trust

A real estate investment trust scheme shall—

(a)be structured as an unincorporated common law trust which is divided into units;

(b)be established under a trust deed which sets out the matters specified in the First Schedule;

(c)have a trustee who is independent of the REIT manager and the promoter and satisfies the requirements of these Regulations; and

(d)have a REIT manager and a trustee who are licensed persons and satisfy the requirements of these Regulations.

6. Term of the trust

(1)The trust deed shall specify the term of the trust which term shall not exceed the maximum period specified under the law relating to perpetuities or any other written law.

(2)A real estate investment trust scheme shall not extend beyond the term of the trust.

7. Assets of the scheme

(1)All assets of the real estate investment trust scheme shall—

(a)be held in the name and under the control of the trustee for the benefit of REIT securities holders as the beneficiaries of the trust in accordance with the terms of the trust deed;

(b)only be invested in eligible investments; and

(c)be segregated from the assets and liabilities of the trustee and not constitute the assets of the trustee in the event of—

(i)a claim by the creditors of the trustee;

(ii)the insolvency, winding up, takeover, restructure or amalgamation of the trustee;

(iii)the winding up of the scheme;

(iv)the dissolution of the scheme; or

(v)the amalgamation or restructure of the scheme.

(2)A trustee may, subject to the provisions of these Regulations and the terms of the trust deed, enter into borrowing arrangements for the purpose only of fulfilling the objectives of the trust and may pledge or otherwise give security over the assets of the trust scheme to secure such borrowing.

8. Types of real estate investment trust schemes

A real estate investment trust scheme may, be structured as a D-REIT or an I-REIT in accordance with these Regulations.

9. Status of the fund and redemption of units

(1)A D-REIT may be structured as an open ended or a closed ended fund and may be converted from one status to the other in accordance with regulation 86.

(2)An I-REIT which is the subject of an unrestricted offer may only be structured as a closed ended fund and the REIT securities of an unrestricted I-REIT shall be listed.

(3)An I-REIT which is the subject of a restricted offer may be structured as either an open ended or a closed ended fund and may be converted from one status to the other in accordance with regulation 86.

(4)An I-REIT which is the subject of a restricted offer may, subject to these Regulations,be converted to a closed fund and may be converted to an unrestricted offer.

(5)Where a REIT is structured as an open ended fund, the scheme documents shall set out the entitlement of the holders of the REIT securities to require the trustee to redeem the REIT securities, including the procedure and limits on the holder being able to seek redemption and the method of valuation and pricing of issues and redemptions.

(6)Nothing in these Regulations shall be construed to restrict the trustee from offering to acquire units from holders of a D-REIT or an I-REIT on a voluntary basis or from issuing additional units from time to time in accordance with these Regulations.

10. Objectives of a D-REIT

The objectives of a D-REIT and the powers of the trustee of a D-REIT, as specified in the trust deed, shall be limited to—

(a)the acquisition of eligible real estate, investment in eligible investments and the undertaking of real estate development and construction projects including—

(i)housing projects involving–

(A)the provision of buy to let housing;

(B)tenant purchase schemes and arrangements;

(C)development of to let housing for sale;

(D)development of to hold and let housing;

(E)development of for sale housing; or

(F)any combination of subparagraphs (A) to (E) or any other form of provision of shelter, housing or accommodation;

(ii)commercial and other real estate related development and construction projects;

(b)marketing and sale of real estate;

(c)retention and management of the real estate assets of the trust with the objective of earning income from the assets;

(d)the undertaking of incidental or connected activities and activities related to the assets of the trust; and

(e)such other activities as may be specified under these Regulations.

11. Objectives of an I-REIT

The objectives of an I-REIT and the powers of the trustee of an I-REIT, as specified in the trust deed, shall be limited to—

(a)the acquisition, for long-term investment, of income generating eligible real estate and eligible investments including housing, commercial and other real estate;

(b)marketing and sale of real estate assets;

(c)retention and management of the real estate assets of the trust with the objective of earning income from the assets;

(d)undertaking incidental and connected activities and activities related to the assets of the trust;

(e)undertaking of such development and construction activities as may be specified under these Regulations; and

(f)such other activities as are specified under these Regulations.

12. Restriction on provision of loans or mortgages by REITS

(1)A D-REIT or an I-REIT shall not engage in the provision of mortgages or any other form of lending or debt finance.

(2)Despite paragraph (1) a D-REIT may, where the D-REIT has developed or constructed housing or other real estate assets, provide—

(a)a mortgage;

(b)other forms of secured loan;

(c)secured finance; or

(d)any form of lending or finance through a progressive purchase mechanism,

for the purpose of assisting a tenant or purchaser to acquire a housing from the D-REIT.

(3)A D-REIT that provides finance to a purchaser and subsequently converts to an I-REIT, may, as an I-REIT, continue to hold such loans or mortgages as assets but shall not engage in additional lending or provision of mortgages.

13. Reference to D-REIT and I-REIT to include a reference to the trustee

A reference in these Regulations to a real estate investment trust, a real estate investment trust scheme, a D-REIT or an I-REIT shall, where the regulation imposes a restriction on the powers of, or an obligation on, or requires, empowers or authorizes the real estate investment trust, real estate investment trust scheme, D-REIT or I-REIT to undertake any act or thing, include a reference to the trustee of the REIT and, where the context so permits, a reference to the REIT manager.

Part III – AUTHORIZATION OF REAL ESTATE INVESTMENT TRUST SCHEMES

14. Restriction on offer and promotion

(1)A person shall not offer or issue REIT securities to any person unless the offer or issue complies with these Regulations.

(2)A person shall not—

(a)issue or cause to be issued an advertisement—

(i)inviting a person to become or offer to become an investor or a holder of REIT securities; or

(ii)containing information which may lead directly or indirectly to a person becoming or offering to become a participant in a scheme; or

(b)advise or procure a person to become or offer to become an investor or a holder of REIT securities;

unless the REIT securities are for a scheme that has been declared to be an authorized scheme by the Authority under regulation 18.

(3)The provisions of this regulation and regulation 15 shall not apply to an offer or issue to the promoter or any person connected with the promoter or to the procuring of such person to become a holder of REIT securities.

15. Prohibited activities before an authorization

A person shall not issue REIT securities in a real estate investment trust or in connection with a real estate investment trust scheme unless that person applies to the Authority for, and obtains an authorization for the issue of REIT securities.

16. Application for authorization

(1)A promoter and the trustee shall submit a joint application in Form I prescribed in the Second Schedule, to the Authority for the authorization of a real estate investment trust scheme.

(2)An application made under paragraph (1) shall—

(a)Deleted by L.N. 159/2023, r. 2;

(b)be offered in a minimum subscription or offer parcels as may be determined by the issuer subject to a minimum subscription of one hundred thousand shillings.

[L.N. 159/2023, r. 2.]

17. Procedure for application

(1)A promoter and trustee shall, in making an application under regulation 16, submit to the Authority—

(a)the prescribed application fee;

(b)a draft trust deed or the trust deed;

(c)a draft prospectus or an offering memorandum;

(d)an agreement or draft management services agreement with the REIT manager;

(e)an agreement or draft agreement with the property manager;

(f)an agreement or draft agreement with the project manager certifier;

(g)certified copies of any other scheme documents and material contracts;

(h)certified copies of valuation reports of properties vested in or to be vested in, acquired or transferred or to be acquired or transferred to the trustee as assets of the trust;

(i)reports of experts and consents of experts for inclusion;

(j)a legal opinion in respect of–

(i)the title, encumbrances, terms of contracts and status of registration of the real estate and other assets vested in or set out in the prospectus or offering memorandum that are to be vested in, acquired or transferred to the trustee as assets of the trust; and

(ii)the compliance of the trust deed with these Regulations;

(k)the contract with and certified copy of the report of the structural engineer;

(l)if it is proposed that the REIT be authorized as an Islamic REIT, a copy of the Shariah advisor's report;

(m)audited financial statements of the REIT manager for the financial year immediately preceding the application for authorization;

(n)audited financial statements of the trustee for the financial year immediately preceding the application for authorization; and

(o)such other documents as the Authority may prescribe from time to time.

(2)The Authority may require the applicant to furnish it with such additional information, verification and copies of any additional documentation as the Authority may consider necessary.

18. Authorization of a scheme

(1)The Authority may, upon considering an application and determining that the scheme does not have a name that is undesirable or misleading, declare a real estate investment trust scheme to be an authorized scheme under these Regulations and issue to it, an authorization certificate in Form 2 of the Third Schedule.

(2)The Authority may, in authorizing a scheme under paragraph (1), impose such conditions as it may consider necessary.

(3)An order made under paragraph (1) shall not—

(a)be construed as a recommendation as to the merits of a real estate investment trust scheme; or

(b)render the Authority liable for any action in damages suffered by any person as a consequence of the authorization.

19. Liability of the trustee, REIT manager or auditor

(1)Subject to regulations 25, 26, 44, and 48, any provision in the scheme documents of a real estate investment trust scheme which exempts or purports to exempt a REIT manager, a trustee including a secondary disposition trustee or an auditor from liability for any failure to exercise due care and diligence in the discharge of their functions in respect of the real estate investment trust scheme is void:Provided that any trustee, in undertaking any borrowing or financing arrangement, shall be entitled to limit its liability for any borrowing within the scope of its authority, to the assets of the fund.

(2)Despite any provision in the scheme documents, a trustee including a secondary disposition trustee, a REIT manager or an auditor shall be liable for any loss, damage or depreciation in the market value of the securities or other assets in which the scheme assets arc invested where such loss, damage or deprecation arises from—

(a)in the case of the trustee or the REIT manager, a breach of their fiduciary duties or obligations;

(b)failure to exercise due care and diligence in the discharge of their functions;

(c)negligence whether professional or otherwise; or

(d)wilful default by the trustee, secondary disposition trustee, REIT manager or auditor or their agents, employees or associates.

20. Revocation of authorization

(1)The Authority may, on its own initiative or at the request of the trustee, revoke an order for the authorization of a real estate investment trust scheme under regulation 18(1).

(2)The Authority shall not revoke an order under paragraph (1) unless it has given the trustee, the REIT manager and any REIT securities holder an opportunity to be heard and the Authority has reason to believe that—

(a)there has been a breach of a condition or the scheme has failed to satisfy a requirement for the grant of an authorization;

(b)it is undesirable in the interests of the REIT securities holders or potential REIT securities holders that the scheme should continue as an authorized scheme;

(c)any proposal to restructure the scheme including changing the trustee or the REIT manager would not adequately protect the interests of the REIT securities holders; or

(d)the trustee or REIT manager has—

(i)furnished the Authority with false, inaccurate or misleading information; or

(ii)contravened a provision of, or failed to satisfy a requirement imposed under the Act or these Regulations.

(3)In revoking an authorization under paragraph (1), the Authority shall take into consideration any matter relating to the scheme, the trustee, the REIT manager or an officer or controller of the trustee or REIT manager or any director of, person employed by, or associated with the trustee or REIT manager in relation to the scheme.

(4)The Authority shall, in revoking an authorization under paragraph (1)—

(a)issue to the trustee and the REIT manager a written notice of its intention to revoke the authorization; and

(b)give the trustee and the REIT manager an opportunity to be heard either in person or through submissions.

(5)A notice issued under paragraph (4)(a) shall specify—

(i)the reasons for which the Authority proposes to revoke the authorization; and

(ii)the particulars of the rights conferred under paragraph (4)(b); and

(iii)require the trustee to submit a copy of the notice to the REIT securities holders.

21. Winding up of a real estate investment trust scheme

(1)The Authority may, where it revokes an authorization under regulation 20, apply to the Court for the appointment of a person to wind up the real estate investment trust scheme.

(2)Where the Authority has made an application under paragraph (1), it shall—

(a)give a written notice of the application to the trustee and the REIT manager; and

(b)inform the REIT securities holders of the application.

(3)This regulation shall apply subject to any orders of the Court under regulation 23.

22. Termination of a real estate trust scheme by the promoter, trustee or REIT Manager

(1)The trustee shall, where it initiates the revocation of an authorization under regulation 20 (1), apply to the Authority for the termination of the real estate investment trust scheme.

(2)The trustee shall submit, together with the application under paragraph (1), a plan for winding up the scheme.

(3)The Authority shall approve a plan for winding up submitted to it under paragraph (2) if the Authority is satisfied that the interests of the REIT securities holders are properly protected.

(4)This regulation shall apply subject to any orders that may be made by the Court under regulation 23.

23. Power of the court in winding up of a real estate investment trust scheme

(1)The trustee, the REIT manager or any REIT securities holder may make an application to Court for an order to wind-up the operations of an authorized scheme.

(2)Prior to making an application under paragraph (1), the trustee or REIT manager shall give the Authority and REIT security holders notice of the application and the grounds for making the application.

(3)The Authority, the trustee, the REIT manager and any REIT securities holder shall, where an application is made under paragraph (1), be entitled to be heard by the Court on the application.

(4)The Court may make an order under paragraph (1) for the winding up of an authorized scheme if the Court is satisfied that—

(a)the scheme is being operated in contravention of the Act, these Regulations or the scheme documents;

(b)it is in the interest of the REIT securities holders or in the public interest to terminate the scheme; or

(c)it is just and equitable to make the order.

24. Restriction on the issue or offer of REIT securities

(1)For the purposes of these Regulations, a person who invites another person—

(a)to enter into an agreement for or with the view to subscribing for or otherwise acquiring or underwriting the issue or offer of any REIT securities; or

(b)to make an offer under subparagraph (a),

shall be considered to be issuing or offering REIT securities.

(2)A person shall not—

(a)make an offer of or issue REIT securities or other securities in respect of a real estate investment trust or a real estate investment trust scheme—

(i)otherwise than in accordance with the Act, these Regulations and with a prospectus or an offering memorandum that contains the information set out in the Fourth Schedule and has been approved by the Authority; and

(ii)in respect of a real estate investment trust scheme which has been authorized by the Authority either as a D-REIT or an I-REIT;

(b)act as an agent in the sale, issue or offer of REIT securities unless that person is licensed by the Authority and complies with these Regulations; or

(c)act as a promoter of a real estate investment trust scheme or a real estate investment trust except in accordance with the Act and these Regulations.

(3)The provisions of paragraph (2) shall not apply to—

(a)an offer of REIT securities to a promoter of a scheme or to connected persons;

(b)an agreement entered into by a promoter or connected person to acquire REIT securities in exchange for or part exchange of the transfer of real estate into a proposed scheme; or

(c)an offer or issue of REIT securities to the promoter or connected person which are subject to the restriction that the securities cannot be subsequently transferred by the promoter except as a consequence of the winding up or death of the promoter, or where made pursuant to regulation 27(4) or regulation 29(5).

25. Obligations of a promoter in an initial offer or issue of REITs securities

(1)A promoter shall be deemed to be the offeror or issuer of the initial offer or issue of REIT securities to a person who is not the promoter or connected with the promoter and shall have continuing liability for—

(a)any covenants and warranties contained in the prospectus or offering memorandum;

(b)any misleading or deceptive statements made in any prospectus or offering memorandum; or

(c)any omission from the prospectus or offering memorandum.

(2)Despite the provisions of regulation 16 and the role played by the trustee in the issue of REIT securities, the trustee shall not be considered to be the issuer and its liability shall be limited to—

(a)covenants and warranties made by the trustee; and

(b)misleading and deceptive statements made by, and included in the prospectus or offering memorandum with the approval of the trustee in its capacity as an expert.

26. Obligations of a REIT manager in a subsequent offer or issue of REITs securities

(1)A person who is a REIT manager at the time of any subsequent issue or offer of REIT securities made after the initial offer or issue shall be deemed to be the issuer or offeror of any subsequent issue or offer and shall have continuing liability for—

(a)any covenants or warranties;

(b)misleading or deceptive statements in the prospectus or offering memorandum; or

(c)omissions from the prospectus or offering memorandum, made or issued by it whilst that person was the REIT manager notwithstanding that that REIT manager subsequently ceases to be the REIT manager.

(2)The liability of the trustee in the case of any subsequent offer shall be limited to liability to—

(a)covenants and warranties made by the trustee; and

(b)misleading and deceptive statements made in respect of—

(i)the trustee that have been included in the prospectus or offering memorandum with its approval in its capacity as an expert; and

(ii)those which is aware of or should have been aware of as a consequence of its role as trustee of the scheme.

Part IV – OFFERS IN RESPECT OF A D-REIT

27. Offers in respect of a D-REIT

(1)An offer or an issue of REIT securities in a D-REIT shall only—

(a)be made as a restricted offer to professional investors;

(b)be offered in minimum subscription or offer parcels of five million shillings; and

(c)subject to these Regulations, shall only be transferred to a party to whom the REIT securities could have been issued or offered.

(2)A D-REIT shall have a minimum of seven investors.

(3)The minimum value of the initial assets of real estate investment trust in a D-REITshall be one hundred million shillings.

(4)A minimum of twenty-five percent of the total REIT securities in the trust by value shall be free float:Provided that this provision shall not apply where additional REIT securities are issued to—

(a)the promoter;

(b)the REIT manager; or

(c)parties associated or connected with either of them,

for the funding of an unscheduled cost overrun on a development or construction, in circumstances where such REIT securities during the time that they are held by the promoter, REIT manager or a connected person or associated party shall not be entitled to voting rights in respect of such additional REIT securities but may be entitled to participate in any distribution in respect of such REIT securities.

(5)Subject to the exception under paragraph (4), a minimum free float of twenty five percent of the REIT securities on issue at any time shall be held by investors who are not connected persons or associated with the promoter or the REIT manager.

(6)The trustee shall not register any issue or transfer of a REIT security if the trustee has reasonable grounds to believe that the issue or transfer would result in a breach of this provision in relation to the minimum requirements for the free float.

(7)The trustee may, in registering or declining to register an issue or a transfer under paragraph (6), rely on a certification issued by the subscriber or transferee that he or she is not a connected person or associated with the promoter or the REIT manager.

28. Listing of D-REIT securities

REIT securities in a D-REIT, if listed, shall only be listed on a market segment of a securities exchange approved by the Authority which limits—

(a)trading to a restricted minimum parcel size of one hundred thousand; and

(b)investors who may trade on such market segment of the securities exchange to those to whom an offer of the D-REIT securities could have been made.[L.N. 159/2023, r. 3]

Part V – OFFERS IN RESPECT OF AN I-REIT

29. Offers in respect of an I-REIT

(1)An offer or an issue of REIT securities in an I-REIT shall be made either as—

(a)a restricted offer to professional investors in accordance with an offering memorandum; or

(b)an unrestricted offer in accordance with a prospectus.

(2)REIT securities in an I-REIT may be offered as a restricted offer in minimum subscription or offer parcels of five million shillings and may, subject to these Regulations, only be transferred to a party to whom they could have been issued or offered.

(3)An I-REIT shall, subject to any greater number as may be required by the listing rules of a securities exchange, have a minimum of seven investors.

(4)The minimum value of the initial assets of a real estate investment trust in an I-REIT shall be three hundred million shillings.

(5)A minimum of twenty five percent of the total of REIT securities in the trust by value shall be free float:Provided that this provision shall not apply where additional REIT securities are issued to—

(a)the promoter;

(b)the REIT manager; or

(c)any party associated or connected with either of them,

for the funding of an unscheduled cost overrun on a development or construction, provided that such REIT securities during the time that they are held by the promoter, REIT manager or a connected person or associated party shall not be entitled to voting rights in respect of such additional REIT securities but may be entitled to participate in any distribution in respect of such REIT securities.

(6)Subject to the exception under paragraph (5), a minimum of twenty five percent of the REIT securities on issue at any time shall be free float.

(7)The trustee shall not register any issue or transfer of a REIT security if the trustee believes that the issue or transfer would result in non-compliance with the free float requirements.

(8)The trustee may, in registering or declining to register an issue or a transfer under paragraph (7), rely on a certification given by the subscriber or transferee that that person is not a connected person or associated with the promoter or the REIT manager.

30. Listing of securities of an I-REIT

Where an issue or an offer of REIT securities in an I-REIT is made as an—

(a)unrestricted offer, it shall be listed on a market segment of a securities exchange approved by the Authority; or

(b)a restricted offer, if listed, shall only be listed on a market segment of a securities exchange authorized by the Authority which limits—

(i)trading to a restricted minimum parcel size of five million shillings; and

(ii)investors who may trade on such market segment of a securities exchange to those to whom an offer of the securities could have been made.

Part VI – PROVISIONS APPLYING TO OFFERS OF BOTH D-REITS AND I-REITS

31. Exceptions to limitations on transfers in case of a restricted issue or offer

The restrictions on transfers in a D-REIT or an I-REIT shall not operate to restrict—

(a)a transfer as a consequence of death or insolvency or other in specie transfer; or

(b)prevent the trustee from registering a transfer:

Provided that evidence is submitted together with the request for transfer which sufficiently establishes that the transferee is either a professional investor or a person to whom an exemption applies.

32. Appointment of a transaction adviser

A person who proposes to make an offer or list REIT securities shall appoint a transaction adviser for the purpose of ensuring that the offer or listing is made in accordance with the provisions of these Regulations and the Act.

33. Appointment of a Registrar

(1)An issuer shall, where an offer of REIT Securities is to be listed, appoint a note registrar for the offer and listing of the REIT securities.

(2)A registrar appointed under paragraph (1) shall comply with such requirements as may be prescribed by the Authority.

34. Publication of a prospectus or an offering memorandum

(1)An issuer or an offeror shall, in the case of an offer which is—

(a)an unrestricted offer, publish a prospectus by making it available to the public, free of charge, at an address in Kenya, from the time that the securities are first offered until the end of the period during which the offer remains open; and

(b)a restricted offer, prepare an offering memorandum and make it available to prospective investors.

(2)A person shall not publish or circulate a prospectus or an offering memorandum unless the—

(a)the real estate investment trust scheme has been authorized by the Authority; and

(b)the prospectus or offering memorandum, as the case may be, has been approved by the Authority.

(3)Any restriction imposed by these Regulations shall not operate to prevent the issue or offer of REIT securities to a promoter or a connected person or any such person entering into an agreement to acquire REIT securities in exchange for or part exchange for the vesting or transfer of real estate into a proposed real estate investment trust scheme.

(4)A person shall not issue, without the prior written approval of the Authority, an advertisement announcing an issue or offer of REIT securities unless a prospectus has been published and the advertisement specifies an address in Kenya from which the prospectus can be obtained.

(5)Where a real estate investment trust scheme intends to convert the scheme pursuant to regulation 85 and 86, the REIT manager shall prepare and submit a conversion offering memorandum or a conversion prospectus as the case may be for approval by the Authority.

(6)The Authority shall not be liable for any action in damages suffered by any person as a result of any prospectus or offering memorandum approved by the Authority.

35. Expert statement

(1)A prospectus or an offering memorandum shall not include a statement purporting to be made by an expert if the expert is or has been, engaged or interested in the formation or promotion of the real estate investment trust scheme or the offer of the REIT securities or in the management of the promoter or the REIT manager or is a person connected with the promoter, the trustee or the REIT manager.

(2)A prospectus or an offering memorandum which includes or is based on a statement made by an expert shall not be issued unless—

(a)the expert has given, and has not withdrawn, before the issue of the prospectus or offering memorandum, a written consent to the issue of the prospectus or offering memorandum and the inclusion of the statement in the form and context in which it is included; and

(b)there is a statement in the prospectus or offering memorandum that the expert has given and has not withdrawn the consent.

36. Disclosure of financial structuring

(1)Any measure proposed in the offering memorandum or subsequently introduced in the funding, structuring, management or operation of the REIT by way of structuring or financial structuring including—

(a)the deferral of the REIT manager's fees;

(b)the use of two classes of REIT securities one class of which is entitled, for a limited period, to no or a lower yield than other classes of REIT securities;

(c)inclusion of tenancies with above market rents or minimum rental; or

(d)guarantees from the issuer or a connected person, which is designed to or have the effect of improving the natural or unstructured yield or distribution levels in any financial year by more than five percent above those that would otherwise result from the net income generated from the assets of the fund without the adoption of such measures—

(i)the prospectus or offering memorandum shall specifically disclose and clearly set out the measures;

(ii)the implications of the absence of, the removal or expiry of such measures on yield, cash flows, distributions and the risk profile of the REIT in the short and longer term shall be simply and clearly identified; and

(iii)a sensitivity table shall be included in the prospectus or offering memorandum which demonstrates the impact of the measures.

(2)Where the measures under paragraph (1) are introduced subsequent to the issue of any prospectus or offering memorandum, the measures shall be clearly identified and their impact reported as part of the continuing disclosure reporting under regulation 42 and in subsequent half yearly and annual reports under regulation 101.

37. Approval of prospectus or offering memorandum

(1)The Authority may approve a prospectus or offering memorandum if the prospectus or offering memorandum—

(a)has been signed by—

(i)the issuer;

(ii)the REIT manager and the trustee;

(iii)an expert or other person who consents to the inclusion of a statements made by him or her or to undertake the roles attributed to him or her including, but not limited to the property manager; any project manager certifier; valuer and the structural engineer;

(b)contains all information which investors and their professional advisers would reasonably require, for the purposes of making an informed assessment of the—

(i)assets, liabilities, financial position, profits, losses and prospects of the REIT scheme and the REIT securities; and

(ii)rights attaching to those securities;

(c)contains such information and particulars specified in the Fourth Schedule; and

(d)complies with such other requirements imposed under the Act and these Regulations.

(2)The Authority may, in approving a prospectus or offering memorandum under paragraph (1) impose such conditions or restrictions as it may consider necessary.

(3)An issuer shall, in seeking the approval of a supplemental prospectus or supplemental offering memorandum by the Authority, ensure that such prospectus or offering memorandum meets requirements specified under paragraph (1) and the requirements under the Fourth Schedule relating to a supplemental prospectus or supplemental offering memorandum.

(4)A REIT manager shall, in seeking for the approval of a conversion prospectus by the Authority pursuant to regulation 86, ensure that the conversion prospectus meets the requirements of paragraph (1) and the requirements specified under the Fourth Schedule relating to a conversion prospectus.

(5)The Authority may require the applicant, whenever approval is sought under this regulation to furnish such additional information, verification and copies of additional documentation as it considers necessary.

(6)A prospectus or offering memorandum approved by the Authority shall be valid for a period of six months.

(7)The Authority shall not be liable for any action in damages suffered by any person as a consequence of the Authority approving any prospectus or offering memorandum relating to the scheme.

(8)The approval of a prospectus or an offering memorandum by the Authority shall not operate to waive, relieve or diminish the obligation of any person to make a disclosure or provide a defence to any action under these Regulations or any other law.

38. Liability for a defective prospectus or an offering memorandum

(1)A person shall not—

(a)make a false, misleading or deceptive statement in a prospectus or an offering memorandum; or

(b)omit information or a statement from a prospectus or an offering memorandum which these Regulations requires to be included.

(2)A person who contravenes the provision of paragraph (1), commits an offence.

39. Remedy for unfair prejudice or conduct of a scheme

(1)The Authority may issue a direction if it reasonably believes that the affairs of the scheme are being or have been conducted—

(a)in a manner prejudicial to the interests of—

(i)the REIT securities holders;

(ii)investors in the securities market; or

(iii)some part of REIT securities holders or investors; or

(b)contrary to these Regulations or any other written law.

(2)The Authority may, in issuing a direction under paragraph (1)—

(a)restrain the carrying out of the act or the conduct;

(b)require the removal and replacement of the trustee or the REIT manager;

(c)require the trustee to initiate proceedings in Court, in the name of the trustee for the benefit of REIT securities holders, against any person on such terms as the Authority considers fit;

(d)impose such conditions on the operations or conduct of affairs of the scheme in future as it may consider necessary;

(e)specify the manner in which—

(i)REIT securities of any REIT securities holder in the scheme may be purchased; and

(ii)the REIT securities may be redeemed.

(3)The Authority may, in addition to any direction issued under paragraph (1), apply to Court for an order of appointment of a receiver or manager to wind up the operations of the scheme.

(4)The Court may, upon considering an application under paragraph (2), make an order—

(a)requiring the appointment of a receiver or manager for the whole or part of the assets of the scheme;

(b)specifying the powers and duties of the receiver or manager;

(c)for compensation; and

(d)for the recovery of assets.

(5)A real estate investment trust scheme shall not, where a direction or an order under this regulation has the effect of altering its trust deed or to the scheme documents, without the approval of the Authority, make any alteration or any addition to the trust deed or any scheme documents which is inconsistent with the direction or the order.

40. Compensation for false or misleading prospectus or offering memorandum

(1)This regulation applies—

(a)to an issuer of REIT securities to which a prospectus or offering memorandum relates;

(b)where the issuer is a body corporate—

(i)to each person who is a director of that body corporate at the time when the prospectus or offering memorandum is published; and

(ii)to each person who has consented to be named and is so named in the prospectus or offering memorandum as a director or has agreed to become a director of that body corporate either immediately or at a future time;

(c)to each person who accepts, and is stated in the prospectus or offering memorandum as accepting responsibility for, or any part of, the prospectus or offering memorandum;

(d)to the offeror of REIT securities, where the offeror is not the issuer;

(e)where the offeror is a body corporate, but is not the issuer and does not making the offer in association with the issuer, to each person who is a director of that body corporate at the time when the prospectus or offering memorandum is published; and

(f)to each person who does not fall within paragraphs (a) to (e) and who has authorized the contents of, or of any part of the prospectus or offering memorandum or any expert who has consented to the inclusion of its report or opinion in the prospectus or offering memorandum.

(2)A person to whom paragraph (1) applies shall be jointly and severally liable to pay compensation to any person who acquires any of the REIT securities in reliance on the prospectus or offering memorandum, including acquisition in the secondary market, to which the prospectus or offering memorandum relates, and suffers loss as a result of—

(a)any untrue or misleading statement in the prospectus or offering memorandum; or

(b)the omission of any matter required by the Act or these Regulations to be included in the prospectus or offering memorandum.

(3)Despite the provisions of paragraph (2), a person shall not be responsible for statements or warranties included in a prospectus or an information memorandum or scheme document—

(a)under paragraph (1)(a), (b) or (c), unless the issuer has made or authorized the offer in relation to which the prospectus memorandum is published; or

(b)under paragraph (1)(b), (c), (e) or (f), if such statement is included or the prospectus or offering memorandum is published without his knowledge or consent and on becoming aware of its publication, that person gives reasonable notice to the public and to the Authority that the statement was included or prospectus or information memorandum was published without the knowledge or consent of that person.

(4)A person shall, where he or she has accepted responsibility for, or authorized only part of the contents of a prospectus or information memorandum, be liable under paragraph (1) (c) or (f) only for that part if it is included or substantially included in the form and context to which that person agreed.

41. Obligation to conduct due diligence

(1)An issuer or offeror, a transaction adviser and any person who is—

(a)appointed or proposed to be appointed as a REIT manager;

(b)involved in or connected with the issue or offer of REIT securities or the issue of a supplemental offering memorandum or supplemental prospectus or conversion prospectus or conversion offering memorandum; or

(c)named as an expert in the prospectus or offering memorandum;

shall conduct an independent verification and due diligence of all statements made by or attributed to him or her which he or she has consented to its inclusion in the prospectus or offering memorandum and in respect of any covenants or warranties provided by it which are included, with his or her consent, in the prospectus or offering memorandum or in any scheme document associated or the issue or offer of the REIT securities.

(2)A person shall not be held liable for a statement in or omission from a prospectus or offering memorandum or in respect of a representation, covenant or warranty in a scheme document if that person proves that, prior to making such statement, omission, representation or warranty, that person—

(a)made all inquiries, if any, that were reasonable in the circumstances; and

(b)believed on reasonable grounds that the statement, representation, warranty or omission was not misleading, deceptive or material.

42. Continuing disclosure obligations of trustee and REIT manager

(1)A trustee and the REIT manager of a real estate investment trust scheme whose securities have been issued in accordance with an approved offer, shall keep the Authority; REIT securities holders, any listing exchange and, in the case of an unrestricted REIT scheme, the general public informed by way of a public announcement, as soon as may reasonably be practicable, but in any event not later than the end of the next working day, of any information which the trustee or the REIT manager becomes aware of relating to the real estate investment trust, the REIT scheme, its assets or the REIT manager which—

(a)is necessary to enable holders of REIT securities or potential investors appraise—

(i)the financial position, performance and the state of corporate governance of the real estate investment trust, the scheme or the REIT manager; or

(ii)the valuation of any asset of the real estate investment trust;

(b)is necessary to avoid the establishment of a false market in the REIT securities; or

(c)might reasonably be expected to materially affect market activity in the price of the REIT securities.

(2)The REIT Manager shall inform the trustee of any information which is not within the knowledge and control of the trustee and which requires disclosure so as to enable the trustee to fulfil its obligations under paragraph (1).

(3)Without prejudice to paragraph (2), the trustee shall ensure that the REIT manager has in place a mechanism for updating information on a regular basis and shall obtain, if necessary, updated information from any property manager, project manager certifier, valuer, structural engineer or the auditor, and any Shariah adviser, who shall, if requested by the REIT manager or the trustee, provide all the necessary information to enable the trustee and the REIT manager to fulfil their obligations under paragraph (1).

(4)The obligation to supply information under paragraph (2) shall be in addition to the obligation to provide periodic reports under regulation 101 and the requirements of any listing exchange.

(5)Without prejudice to paragraph (2), the trustee and the REIT manager shall comply with a request for further information by the Authority.

Part VII – APPOINTMENT, REMOVAL AND OBLIGATIONS OF A TRUSTEE

43. Trustee to be licensed by the Authority

(1)The trust deed for every real estate investment trust that applies for authorization as a scheme shall comply with the requirements of the First Schedule and provide for the appointment of a trustee to act as a trustee of a real estate investment trust.

(2)A person who intends to act as a trustee in respect of—

(a)a real estate investment trust scheme for which an authorization is required; or

(b)any real estate investment trust,

shall apply to the Authority to be licensed as such in accordance with regulation 125.

44. Eligibility for appointment as a trustee

(1)A trustee shall be a company or a corporation incorporated or formed or established in Kenya which is—

(a)a bank;

(b)a subsidiary of a bank; or

(c)such other company or corporation as the Authority may license if the Authority is satisfied that the company or corporation has sufficient financial, technical and operational resources and experience necessary to enable it effectively conduct its business and carry out its obligations as a trustee of a real estate investment trust and real estate investment trust scheme.

(2)A trustee shall—

(a)be independent of the promoter, the REIT manager and any property manager, valuer or project manager certifier of the real estate investment trust scheme;

(b)be licensed by the Authority as a REIT trustee;

(c)be independently audited; and

(d)have a minimum issued and paid-up capital and non-distributable capital reserves of at least one hundred million shillings.

(3)Where the appointed trustee is the sole trustee and is not a trust corporation as defined under the Trustee Act (Cap. 167) the Authority may, at the request of the trustee and if required for the purposes of issuing a valid receipt for the proceeds of sale or other capital money arising under a disposition on trust for the sale of land as provided for under section 15 of the Trustee Act, appoint the REIT manager as a secondary disposition trustee for the purposes of enabling compliance with section 15 and with powers limited to those necessary to allow execution of documents and undertake any other matters for the purpose of compliance with section 15 of the Trustee Act.

(4)Where the Authority appoints a person as a secondary disposition trustee under paragraph (3), that person may, if necessary, be registered as the co-owner as a second trustee and at the request of the trustee may execute any documentation as a second trustee.

(5)The Authority may appoint the REIT manager to perform the limited role as a secondary disposition trustee despite the fact that the REIT manager is not eligible to be appointed as a trustee and is not licenced as a trustee.

(6)In appointing the REIT manager under paragraph (5), the Authority may limit the powers of the secondary disposition trustee and impose such conditions as it may consider necessary.

45. Powers, obligations and duties of a trustee and any secondary disposition trustee

(1)The trustee shall, despite being the sole trustee, to the extent permissible by law have power to issue a valid receipt for the proceeds of sale or other capital money arising under a disposition on trust for the sale of land.

(2)The scheme documents may specify the obligations and general duties of a trustee which shall be consistent with the provisions of the Act, these Regulations and any other written law.

(3)The trustee and the employees or officers of the trustee who undertake or supervise the carrying out of the role and functions of the trustee shall—

(a)perform their duties in accordance with the terms of the trust deed, the scheme documents and these Regulations;

(b)act honestly and in a fiduciary capacity as trustee in the best interests of the REIT securities holders as beneficiaries of the real estate investment trust;

(c)fulfil the obligations and duties set out in the scheme documents in conformity with these Regulations;

(d)act in accordance with any other written law applicable to trustees;

(e)maintain the custody of, hold and protect all the assets of the real estate investment trust, ensure they are held in the name of and registered, where required, in the name of the trustee and if required in the name of any secondary disposition trustee;

(f)ensure that all the necessary filings and registrations are recorded, undertaken and maintained;

(g)protect the interests of the real estate investment trust in any asset;

(h)ensure that the assets are—

(i)clearly identified as the assets of the trust and the scheme; and

(ii)held separately from any other assets of the trustee and of any secondary disposition trustee and any other trust, scheme or person;

(i)appoint the REIT manager and, if necessary to protect the interests of beneficiaries, remove the REIT manager and appoint a substitute REIT manager;

(j)act as the REIT manager on a temporary basis in any period where there is no other REIT manager until a new REIT manager is appointed;

(k)supervise the activities of the REIT manager to ensure that they comply with the terms of the scheme documents, the Act and these Regulations;

(l)not delegate to the REIT manager except if appointed by the Authority as a secondary disposition trustee or to any other person not being an officer or employee of the trustee any function of or involving—

(i)the supervision of the REIT manager; or

(ii)the custody or control of the assets of the scheme;

(m)ensure that–

(i)the fund and the assets of the scheme are invested in accordance with the terms of the trust deed, the Act and these Regulations;

(ii)the income of the scheme is applied in accordance with the terms of the scheme documents:

(iii)the assets of the real estate investment trust which are insurable are insured and valued as required by the scheme documents, the Act and these Regulations;

(iv)all payments and distributions made out of the assets of the scheme are made in accordance with the terms of the scheme documents, the Act and these Regulations; and

(v)any borrowing limitations set out in the scheme documents, the Act and these Regulations are complied with;

(n)act in the best interests of the beneficiaries and where there is a conflict between the interests of the trustee and those of any beneficiary, give priority and preference to the interest of the beneficiary;

(o)not make use of confidential information acquired when acting as the trustee to gain an improper advantage for itself or for another person or to cause detriment to a beneficiary.

(4)Where a trustee or secondary disposition trustee contravenes an obligation imposed on it by the scheme documents, the Act or these Regulations, any person who—

(a)has been involved materially in;

(b)participated materially in; or

(c)authorized,

such contravention shall also be considered to have contravened these Regulations.

46. Instructions from a REIT manager

The trustee shall carry out the instructions of the REIT manager unless the trustee has reasonable cause to believe that compliance with such instructions would cause it to breach a duty imposed on it under the scheme documents, the law relating to trustees, the Act or these Regulations.

47. Change of address of the trustee

A trustee shall, at least twenty eight days before changing its address, registered office or permanent place of business in Kenya, notify the Authority and the REIT securities holders of such change.

48. Liability of a trustee

In addition to any obligation imposed under regulation 19 or the scheme documents the trustee, shall be liable to the holders of REIT securities as a fiduciary; and to the REIT manager for any loss suffered by them during its period as trustee or as a result of—

(a)any failure by the trustee to perform its obligations; or

(b)the trustee's improper performance of its obligations.

49. Exemption from taking action in respect of REIT assets

The trustee may refrain from taking any action in respect of the assets of the real estate investment trust or on behalf of the REIT securities holders if the trustee is unable to access sufficient funds to pay the costs and expenses of taking such action:Provided that—

(a)the trustee has called a meeting of the beneficiaries or a class of beneficiaries;

(b)the meeting called under subparagraph (a) has failed to pass a resolution to provide the funds necessary to conduct the action or to provide the necessary funds within thirty days of the passing of such resolution; and

(c)the trustee had given prior notice of the meeting to the Authority.

50. Register of REIT securities holders

(1)The trustee shall prepare and maintain a register of REIT securities holders of the scheme in a manner approved by the Authority.

(2)The trustee may, with the prior written approval of the Authority, appoint another person to prepare and maintain the register on behalf of the trustee.

(3)The register shall be conclusive evidence as to the persons entitled to the REIT securities, registered in their name.

51. Voluntary Resignation of trustee

(1)The scheme documents may provide for the retirement of a trustee in accordance with the Act and these Regulations.

(2)A trustee shall not resign as trustee unless another person eligible to be appointed a trustee has been appointed to act in place of the trustee.

(3)Where the trustee intends to resign, it shall give at least a three months notice in writing to the Authority, the REIT manager and the REIT securities holders of its intention to resign and shall set out in such notice its reasons for wanting to resign.

(4)The REIT manager shall, in consultation with the trustee and within two months of receipt of the notice under paragraph (3)—

(a)enter into negotiations with alternative parties who are eligible to be appointed as trustee; and

(b)call a meeting, at the expense of the trustee, of REIT securities holders for the purpose of considering and passing a special resolution in respect of any recommendation and appointing a new trustee.

(5)The REIT manager shall issue a notice to the REIT securities holders and the trustee calling for a meeting under paragraph (4)(b) which shall include—

(a)the consent in writing of any proposed trustee or trustees, if a choice of more than one is to be provided, to accept an appointment and to execute the trust deed;

(b)the terms of the appointment including fees;

(c)a copy of the supplemental deed; and

(d)the approval of the Authority to any appointment.

(6)Where the REIT manager is unable to find a replacement trustee or the REITsecurities holders fail to consent to the appointment of any proposed replacement trustee then before the expiry of the period specified in the notice given in paragraph (3) the trustee may—

(a)inform the Authority, the REIT manager and the REIT securities holders of its intention to make an application to the Court for the appointment as replacement trustee of a person who is eligible for appointment under regulation 44; and

(b)at the expense of the trustee make such application.

(7)The appointment of a new trustee shall take effect in the case of a trustee appointed by—

(a)the REIT securities holders from the date of execution by the new trustee of a supplemental trust deed and date of the completion of the transfer or vesting in the new trustee of all of the assets of the trust; or

(b)the Court, from the date specified by the Court.

(8)All costs and expenses incurred in the resignation, change and replacement of the trustee including those of the REIT manager shall be the responsibility of the trustee.

(9)Where there is a conflict between the provisions of this regulation and the scheme documents on the limit of the trustee's right to resign or right to action that a replacement trustee or REIT securities holders may have against the trustee, the provisions of the scheme documents shall prevail.

52. Removal and replacement of a trustee

(1)The scheme documents shall provide for the removal and replacement of the trustee in accordance with the Act and these Regulations.

(2)The Authority shall, except where the Court makes an order for the removal of a trustee, approve the removal and replacement of the trustee.

(3)The REIT securities holders may, by way of a special resolution, approve the removal and replacement of the trustee where the removal and replacement of the trustee is not pursuant to an order of the Court or approval of the Authority.

(4)The REIT manager shall convene a meeting of the REIT securities holders within one month of—

(a)a court of competent jurisdiction making an order for the liquidation of the trustee, except a voluntary liquidation for the purpose of reconstruction or amalgamation under a scheme approved by the Authority;

(b)a manager or a receiver being appointed over any of the assets of the trustee; or

(c)the trustee ceasing to be eligible for appointment under regulation 44.

(5)A meeting convened under paragraph (4) shall consider a recommendation by the REIT manager for the appointment of a replacement trustee or for the making of an application by the REIT manager to the Court for the appointment of a replacement trustee.

(6)The REIT manager shall, in convening a meeting under paragraph (4), issue a notice to the REIT securities holders notifying them of the meeting.

(7)A notice issued under paragraph (6) shall include—

(a)where a recommendation is for the appointment of a replacement trustee—

(i)the consent in writing of the proposed trustee to accept the appointment and execute the supplemental trust deed;

(ii)the terms of the appointment including fees;

(iii)the approval of the Authority to the appointment of a new trustee; and

(iv)the supplemental trust deed; or

(b)an alternative recommendation, in the event that a replacement cannot be found or is not approved by a special resolution at the meeting of REIT

security holders and an application is made by the REIT manager to the Court for the appointment of the proposed replacement or temporary trustee.

(8)Where the REIT securities holders fail to approve a recommendation under paragraph (5), the REIT manager shall—

(a)inform the Authority of the decision of the REIT securities holders; and

(b)as soon as possible, make an application to the Court for the appointment of a person eligible for appointment under regulation 44 as a replacement or temporary trustee.

(9)A REIT manager may, with the approval of the Authority remove a trustee where—

(a)the trustee fails or neglects after reasonable notice from the REIT manager or the Authority to carry out its duties under the scheme documents or these Regulations; or

(b)the trustee repeatedly breaches the provisions of the Act, these Regulations or the scheme documents; and

(c)the REIT securities holders, by ordinary resolution resolve—

(i)a notice be issued to the trustee for his removal; and

(ii)approve the appointment of a replacement trustee; or

(iii)approve the making of an application to the Court for the appointment of a replacement trustee or temporary trustee; or

(d)in any other circumstances if the REIT securities holders, by special resolution resolve that such notice be given.

(10)A REIT manager shall not remove a trustee under paragraph (9) unless he has issued to the trustee, a three months notice in writing of the intention to remove the trustee.

(11)Where the trustee is removed and replaced under this regulation the REIT manager shall be entitled to recover any costs or expenses of or related to the appointment of the replacement trustee including the costs of convening any meetings and of any application to the Court from assets of the trust and the replacement trustee shall be entitled to make a claim against the replaced trustee for recovery of such costs and expenses.

(12)The appointment of a replacement trustee shall take effect—

(a)in the case of a trustee appointed by the REIT securities holders from the date of execution by the new trustee of a supplemental trust deed and date of the completion of the transfer or vesting in the new trustee of all of the assets of the trust; or

(b)in the case of a trustee appointed pursuant to an order by the Court, from the date specified by the Court.

(13)Where a trustee ceases to be a trustee under this regulation and the appointment of a replacement trustee takes effect, it shall—

(a)make available to the replacement trustee, all books, records, reports, information and data including access to software and source code which is within the possession or control of the trustee relating to the activities of the scheme or the assets of the trusts; and

(b)execute such notices to tenants, assignments and novations of contracts as may be required.

53. Notification of contraventions

The trustee shall, in addition to preparing any periodic reports required under the Act, these Regulations or any listing rule, notify the Authority, in writing—

(a)immediately upon becoming aware of any matter or failure, act or omission by the REIT manager or any other party involved in a real estate investment trust scheme, which constitutes a breach of any of the provisions of the Act, these Regulations or the scheme documents; and

(b)of any steps taken by the trustee or which the trustee proposes to take to rectify the breach as soon as is reasonably practicable.

Part VIII – APPOINTMENT, REMOVAL AND OBLIGATIONS OF A REIT MANAGER

54. Authorization of a scheme as a self-managed scheme

(1)The scheme documents shall provide for the appointment, resignation and removal of the REIT manager.

(2)The Authority may, on the application of the trustee, authorize a scheme to be self-managed by a company which is wholly owned and controlled by the trustee and is an eligible asset of the real estate investment trust.

(3)In considering whether to authorize a scheme to be self-managed the Authority shall take into consideration—

(a)the type, objectives, history and performance of the real estate investment trust and the number and type of REIT securities holders;

(b)the proposed terms of appointment;

(c)the resources including, human, systems and financial resources that will be available to the company;

(d)the experience of the directors and senior management of the company;

(e)the experience and history of performance of the trustee and the resources available to it;

(f)the potential conflicts of interest and the powers of the trustee and of REIT securities holders to—

(i)remove the company as REIT manager;

(ii)appoint the directors of the company;

(iii)limit the conflicts of interest including the remuneration of directors and employees of the company;

(iv)limit the risks to the fund and to the unit holders including the availability of insurance in respect of negligent acts by the company as REIT manager or its directors; and

(v)other factors that the Authority considers relevant in the interests of REIT securities holders; and

(g)the amendments proposed to the trust deed and the scheme documents !o recognise the scheme as a self-managed scheme.

(4)Where the Authority authorizes self-management of a scheme through a wholly owned company the provisions of these Regulations shall, except where expressly provided for, apply to the REIT manager notwithstanding that it is a company that is wholly owned.

(5)An approval by the Authority for a scheme to be self-managed shall be conditional upon the trustee and the REIT securities holders approving the appointment and terms of the appointment of the company.

(6)A REIT manager shall not manage more than one real estate investment trust scheme unless it has applied for and obtained the approval of the Authority.

55. Appointment of a REIT manager

(1)Every REIT manager shall be appointed by the trustee with the prior approval of the Authority.

(2)The REIT manager shall—

(a)be a company incorporated in Kenya;

(b)have a minimum paid up capital of ten million shillings;

(c)be independently audited; and

(d)have key personnel with experience and skills to—

(i)manage the scheme; and

(ii)implement the objectives of the scheme and to enable it to undertake the role of and duties as REIT manager; or

(e)demonstrate that it has access to and shall appoint from time to time, when required, persons having the required skills to enable it to implement the objectives of the scheme and to undertake the role of and duties as REIT manager;

(3)A company shall not operate as a REIT manager of a real estate investment trust scheme or any real estate investment trust unless it is licensed by the Authority as a REIT manager under regulation 125.

(4)Where a REIT manager is associated with the promoter, the board of directors of the REIT manager shall be comprised of at least two independent directors one of whom shall be appointed as the Chairperson.

(5)Where a real estate trust investment scheme is, with the approval of the Authority, self-managed, the directors of the REIT manager shall be appointed by and may be removed by the trustee.

(6)A REIT manager may, with the approval of the trustee, appoint a property manager and such other agents as it considers necessary and delegate its functions in relation to the investment to such appointees.

(7)A REIT manager shall—

(a)be responsible for the actions of any property manager; and

(b)supervise the property manager to ensure that the property manager complies with the terms of scheme documents, the Act and these Regulations.

56. Duties of a REIT manager

(1)The scheme documents shall set out the obligations and duties of the REIT manager in accordance with these Regulations.

(2)The REIT manager shall, subject to the terms of the scheme documents and any directions in writing received from the trustee—

(a)acquire, manage, maintain and dispose assets of the scheme and where authorized by the scheme documents conduct development and construction activities—

(i)in accordance with the provisions of the scheme documents, these Regulations and the law applicable to trusts; and

(ii)to give effect to the objectives of the scheme;

(b)take all reasonable steps and exercise due diligence to ensure that the assets of the scheme are invested in accordance with the scheme documents;

(c)while acting in the capacity as a fiduciary on behalf of the REIT securities holders–

(i)exercise the degree of care and diligence that a reasonable and skilled person would exercise in the position of a management company;

(ii)act in the best interests of the REIT securities holders and where there is a conflict between the interests of the REIT securities holders and that of the REIT manager, give priority to the interests of REIT securities holders;

(iii)observe high standards of integrity and fair dealing in managing the fund to the best and exclusive interests of the REIT securities holders;

(iv)not use information acquired in his capacity as REIT manager to gain an unfair advantage for itself or other persons, or to the detriment of the REIT securities holders;

(v)ensure that the property of the fund is clearly identified and held separately from the assets of the REIT manager or any other person; and

(vi)establish and maintain risk management systems and controls and ensure that it has adequate resources and systems, including suitably qualified and equipped human resources to fulfil the functions and obligations of a REIT manager;

(d)account to the trustee and the REIT securities holders for any loss suffered by the scheme as a result of failure by the REIT manager, any director of the REIT manager, any officer, employee or agent appointed by the REIT manager to exercise the required standard of care and diligence necessary to operate and manage the fund;

(e)maintain on behalf of the trustee, proper accounting records and other record to enable an accurate view of the fund to be formed;

(f)prepare accounts in accordance with regulation 101;

(g)provide all assistance necessary to enable an audit of the accounts prepared under subparagraph (f) to be carried out in accordance with Regulation 97;

(h)take all reasonable steps and exercise due diligence to assist and ensure that the assets of the trust are valued as required under regulation 113;

(i)obtain tenants and manage tenancy arrangements;

(j)carry out or cause to be carried out all property management functions in compliance with Estate Agents Act (Cap. 533);

(k)obtain quotations for insurance of the assets of the trust and make recommendations to the trustee;

(l)prepare budgets for capital works and maintenance of the assets of the trust;

(m)recommend to the trustee for approval, the budgets for capital works and maintenance prepared under subparagraph (l);

(n)implement approved budgets, capital works and maintenance programmes;

(o)prepare budgets and work programmes, negotiate contracts for recommendation to the trustee for approval in relation to the development and construction works including the appointment of contractors and professional and expert advisors;

(p)implement any budgets, work programmes and contracts approved by the trustee in relation to development and construction works, update budgets and work, programmes as required and recommend changes to the trustee;

(q)prepare and submit to the trustee recommendations on distributions;

(r)undertake all calculations including calculations of net asset values and ratios required to comply with the terms of the scheme documents and these Regulations;

(s)arrange and recommend to the trustee for approval any borrowings or other financing arrangements and the entering into of any risk management products or strategies;

(t)make recommendations to the trustee and manage repayment and compliance with the terms of any borrowing arrangement under subparagraph (r);

(u)in the case of an unlisted trust, take all reasonable steps and exercise due diligence to ensure that the REIT securities are correctly priced and the provisions of the scheme documents on redemption are complied with;

(v)prepare and lodge with the Authority, and circulate to the trustee and REIT securities holders, periodic reports as required under the Regulations;

(w)in the case of an unrestricted issue l-REIT, ensure that the scheme documents are made available for inspection by the public, free of charge, at all times during official working hours and make copies of such documents available upon the payment of a reasonable fee; and

(x)in the case of a D-REIT, ensure that the scheme documents are available to any REIT securities holder or person who is potentially qualified to be a REIT securities holder.

(3)A REIT manager shall, in the performance of its duties, act in the best interests of REIT securities holders as beneficiaries of the real estate investment trust and take reasonable care to protect those interests.

57. Restrictions on activities of a REIT manager

(1)A REIT manager shall not, in relation to a scheme for which it is the REIT manager, engage in any activity other than the management of that scheme.

(2)A REIT manager shall, if the REIT manager intends to act for more than one scheme, apply to the Authority for an approval.

(3)The Authority shall, in considering an application under subparagraph (2), take into consideration—

(a)the resources, skills and experience of the REIT manager;

(b)the performance of the REIT manager and of the scheme; and

(c)potential conflicts or interests that may arise as a result of the company acting as a REIT manager in relation to more than one scheme.

(4)An approval by the Authority for REIT manager to manage more than one scheme shall be conditional upon the trustee and the REIT securities-holders of each scheme approving the appointment and the terms of the appointment.

58. Connected party transactions

(1)A REIT manager shall conduct all transactions at an arm’s length and in an open and transparent manner.

(2)A REIT manager shall not act or conduct transactions in a manner that would result in unnecessary, cost or risk to the fund; and

(3)A REIT manager that intends to conduct a transaction with a connected person shall comply with regulation 118.

59. Change of address

Where a REIT manager intends to change its address, registered office or permanent place of business, it shall notify the Authority and the REIT securities holders at least twenty eight days before such change.

60. Trustee requests to a REIT manager

A REIT manager shall—

(a)at the request of the trustee, supply to the trustee such information concerning the administration of the fund and of the real estate investment trust and the scheme as the trustee may reasonably require;

(b)comply with any lawful directions issued by the trustee for the purposes of satisfying requirements of paragraph (a);

(c)prepare and make available on a timely basis, any additional information as may be required from time to time by the Authority, auditor, property manager, project manager certifier or the trustee;

(d)grant to the trustee and any auditor access to the books of accounts and records of the REIT manager, the trust, the scheme or the fund; and

(e)submit to the trustee on a timely basis, such information as may be necessary to ensure that the continuing disclosure obligations under these Regulations are complied with.

61. Removal and replacement of a REIT manager

(1)The Authority shall, except where the removal is ordered by the Court, approve any removal and replacement of a REIT manager including the appointment of a replacementREIT manager where the REIT manager resigns or is not reappointed by the trustee.

(2)The trustee shall convene a meeting of REIT securities holders for purposes of approving the removal of the REIT manager and the appointment of a replacement REIT manager if—

(a)the Court makes an order for the liquidation of the REIT manager, except a voluntary liquidation for the purpose of reconstruction or amalgamation under a scheme approved by the Authority;

(b)a manager or a receiver is appointed over any of the assets of the REIT manager;

(c)the REIT manager ceases to be eligible for appointment under regulation 55;

(d)the REIT manager is in repeated breach the provisions of the Act, these Regulations or the scheme documents; or

(e)the trustee is of the opinion that the replacement of the REIT manager is in the interests of the REIT securities holders or is necessary to protect the assets of the trust.

(3)The REIT manager shall bear the costs and expenses incurred in the replacement of the REIT manager under this Regulation.

(4)The resignation of a REIT manager shall not take effect until a replacement is appointed by the trustee and the appointment is approved by the Authority.

(5)Where a company ceases to be a REIT manager and the appointment of a replacement REIT manager takes effect, it shall—

(a)make available to the trustee and to the replacement REIT manager, all books, records, reports, information and data including access to software and source code which is within the possession or control of that REIT manager relating to the activities of the scheme or the assets of the trusts; and

(b)execute such notices to tenants, assignments and novations of contracts as may be required by the trustee.

Part IX – APPOINTMENT AND ROLE OF STRUCTURAL ENGINEER AND THE PROJECT MANAGER CERTIFIER

62. Appointment and role of the structural engineer

(1)A trustee shall, in consultation with the REIT manager, appoint a structural engineer and have access at all times to the services of a structural engineer in relation to the REIT.

(2)The trustee shall appoint the structural engineer under paragraph (1) prior to—

(a)an application being made for authorization of the scheme;

(b)the issue of a prospectus or an offering memorandum;

(c)the entering into any binding contract or a contract that can only be terminated on the payment of a penalty, for the acquisition or disposal of any additional properties by the trustee; and

(d)any initial public offering.

(3)The structural engineer shall ensure that the state of repair of the specific real estate property, including the services, systems and material plant and equipment, is independently assessed, latent defects identified and that these factors are—

(a)taken into consideration in any valuation; and

(b)disclosed in any prospectus or offering memorandum.

(4)The structural engineer shall, in the performance of his duties under paragraph (3)—

(a)conduct an appraisal of a specific real estate property which is proposed to be acquired; and

(b)prepare and submit to the REIT manager and the trustee a report on—

(i)the state of repair of the proposed property, services, systems and material plant and equipment;

(ii)any latent defects and the cost, if any, which is likely to be incurred in remedying such defects or in bringing the property to a reasonable state of repair; and

(iii)any limitation in the engineer's ability to make a full assessment and whether additional professional assessment, input or reports are required.

(5)The structural engineer shall, in performing his duties, be independent of, and shall not be subject to the direction or control of—

(a)the REIT manager and any property manager;

(b)the project manager certifier;

(c)the trustee;

(d)any valuer appointed to conduct a valuation in respect of a specific property; or

(e)any person from whom the I-REIT has or is proposing to acquire real estate assets.

(6)The REIT manager shall—

(a)make available a copy of any report of the structural engineer to the property manager, project manager certifier, and to the valuer; and

(b)ensure the details of the report are included in any prospectus or offering memorandum and where appropriate, disclosed as part of the continuing disclosure obligation under these Regulations.

63. Appointment and role of project manager certifier

(1)The trustee of a D-REIT shall, in consultation with the REIT manager, appoint a project manager certifier prior to entering into any binding contract or a contract that can only be terminated on the payment of a penalty and which is relates to the development and construction.

(2)The trustee of an I-REIT shall, in consultation with the REIT manager, where any construction or development activity specified under regulation 65 or 70 forms part of the activities of an I-REIT, appoint a project manager certifier prior to entering into any binding contracts or a contract that can only be terminated on the payment of a penalty which relate to or are connected with development and construction.

(3)The project manager certifier appointed under paragraph (1) shall report to the trustee and provide copies of all reports to the REIT manager.

(4)The project manager certifier shall be—

(a)a company incorporated in Kenya; or

(b)a person residing in Kenya; and

(c)have in place an appropriate level of professional indemnity insurance.

(5)The trustee shall not appoint a person or company as a project manager certifier unless that person, or if a company, its key personnel one of whom shall be nominated as the person responsible to the trustee for the work undertaken is a member of—

(i)the Institution of Surveyors of Kenya;

(ii)the Architectural Association of Kenya;

(iii)the Institute of Quantity Surveyors of Kenya;

(iv)the Institution of Construction and Project Managers of Kenya; or

(v)an international body recognised by an institution under subparagraph (i) to (iv).

(6)The project manager certifier shall, in the performance of his or its duties under this Regulation, be independent of, and not subject to the direction or control of—

(i)the REIT manager and any property manager;

(ii)the structural engineer;

(iii)the trustee;

(iv)any valuer appointed to conduct a valuation in respect of a specific property; and

(v)any person from whom the l-REIT may acquire real estate assets.

(7)The project manager certifier shall have the requisite project management and quantity surveying skills and expertise to enable the project manager certifier to—

(a)monitor and report to the trustee and the REIT manager on the progress of the development or construction work being planned or undertaken;

(b)report on the cost of work undertaken or to be undertaken to complete the development or construction;

(c)monitor and report on the cost of scheduled plant and equipment to be acquired; and

(d)ensure that the costs under subparagraph (c) are included in the development or construction works budget.

(8)The trustee may, with the consent of the lender to the REIT, appoint, as a project manager certifier, a person who is qualified to be appointed as such despite the fact that the person is also acting in a similar role for the lender to the REIT or in respect of the financing of development and construction works being undertaken by the REIT:Provided that such person shall report directly to the trustee and the REIT manager and shall not be subject to any obligation or duty of confidentiality to the other party that has not been waived as could result in a conflict.

(9)The project manager certifier shall monitor and submit a report to the trustee and the REIT manager on a monthly basis on—

(a)whether or not the work has been completed in accordance with the budget, project plan and payment schedule or any variations prepared by the REIT manager and approved by the trustee;

(b)whether scheduled payments should be disbursed by the trustee to meet the work undertaken, costs of or connected with the development or construction;

(c)the costs of any proposed variation of scheduled works or proposed acquisition of plant and equipment, and

(d)the estimate of the cost and time required to complete the development and construction work relative to the budget and project plan.

(10)The trustee shall disburse funds as requested by the RElT manager and recommended by the project manager certifier—

(a)where such payments—

(i)are in accordance with the budget, project plan and payment schedule approved by the trustee; or

(ii)are varied and approved by a meeting of the REIT securities holders where the total cost of variation is more than fifteen percent of the budgeted costs; or

(b)where the trustee is—

(i)of the opinion that disbursement is necessary to protect the assets of the fund and the interests of REIT securities holders; and

(ii)satisfied with the action which the REIT manager proposes to implement to rectify any problem.

Part X – SPECIFIC REQUIREMENTS FOR I-REITS

64. Investments and objectives of an I-REIT

The investments of an I-REIT scheme shall—

(a)comply with the provisions of the Act and these Regulations; and

(b)be relevant, appropriate and consistent with the investment objectives of the real estate investment trust and scheme as set out in the prospectus or offering memorandum and other scheme documents.

65. Eligible investments for an I-REIT and income requirements

(1)The trustee of an I-REIT may, subject to any limitations which may be specified in the scheme documents and if requested by the REIT manager—

(a)invest directly in eligible real estate in accordance with these Regulations;

(b)invest in eligible real estate assets through investment in an investee company incorporated in Kenya which directly owns the eligible real estate and which is wholly beneficially owned and controlled by the trustee in its capacity as the trustee of the I-REIT where—

(i)the I-REIT trustee has the absolute power at any time to appoint and, without incurring any liability, to remove the directors;

(ii)the trustee of the I-REIT, the company, the directors and the shareholders have entered into a shareholders agreement;

(iii)the REIT manager of the I-REIT is appointed as the manager of the investments of the investee company;

(iv)the Memorandum and Articles of Association of the investee company and the terms of the shareholders agreement limit the objectives of the investee company and the powers of the company and directors and impose the same obligations on the company, its directors and the manager of the trust as if the investee company was an I-REIT and an authorized scheme under these Regulations and was subject to the same obligations and restrictions as are imposed by these Regulations;

(v)the provisions of these Regulations on the carrying out of a valuation, reporting and audit apply to the investee company as if the investee company was an I-REIT and an authorized scheme under these Regulations;

(vi)the investee company invests directly in the eligible real estate and is recorded on the certificate of title or certificate of lease or register as the sole owner;

(c)invest in eligible real estate assets through an investee trust in which the trustee of the I-REIT in its capacity as trustee is the sole beneficiary and has absolute control of voting and right to appoint and remove the trustee of the investee trust and where—

(i)the investee trust is formed under the laws of Kenya as an unincorporated common law trust;

(ii)the I-REIT trustee is also the trustee of the investee trust;

(iii)the REIT manager of the I-REIT is also the manager of the investee trust;

(iv)the terms of the trust deed for the investee trust limit the objectives of the investee trust, the trustee's powers and impose the same obligations on the trustee and the manager of the trust as if the investee trust was an I-REIT and an authorized scheme under these Regulations and subject to the same obligations and restrictions as are imposed under these Regulations;

(v)the provisions of these Regulations on the carrying out of a valuation, reporting and audit apply to the investee trust as if the investee trust was an I-REIT and an authorized scheme under these Regulations;

(vi)the trustee as trustee for the investee trust invests directly in the eligible real estate and is recorded on the certificate of title or certificate of lease or register as the sole owner;

(d)invest in cash, deposits, bonds, securities and money market instruments;

(e)invest in a wholly beneficially owned and controlled company subsidiary which conducts real estate related activities; and

(f)invest in other income producing assets including shares in property companies incorporated in Kenya whose principal business is real estate related or REIT securities in other Kenyan I-REITS:

Provided that the shares or REIT securities are listed on an approved securities exchange.

(2)The requirement for the appointment of a sole trustee shall not be applicable where a secondary disposition trustee is appointed.

(3)The trustee and the REIT manager shall only invest in accordance with these Regulations.

(4)The promoter of an l-REIT and the REIT manager shall propose and specify, in the prospectus or offering memorandum, at least one real estate asset that is already vested in or proposed to be acquired and vested in the trust and for which all legal registration requirements will have been completed within one hundred and eighty days of the closing of the initial offer.

(5)Where—

(a)the promoter, trustee and REIT manager fail to comply with the requirements of paragraph (4) during the intervening period from the close of the initial offer or issue referred to in paragraph (4); and

(b)the registration requirements are not complete and the proposed real estate asset are not vested in the trust,

the funds raised by the initial offer and issue of REIT securities shall only be invested in bank deposits or other liquid investments with a duration not exceeding one hundred and eighty days.

(6)An I-REIT shall invest, within two years of the date of its authorization as a real estate investment trust scheme, at least seventy five percent of the total net asset value in income producing real estate.

(7)The trustee and the REIT manager shall, in complying with the requirements under paragraph (6), ensure that the real estate acquired or to be acquired as an asset of the I-REIT is—

(a)rented on a commercial basis to commercial rent paying tenants;

(b)has good prospects for future net rental income and is competitively located as evidenced by market studies;

(c)free from encumbrances at the time of acquisition except for any charges entered into by the trustee as authorized by the trust deed, the Act and these Regulations; and

(d)in a good state of repair or if requiring redevelopment or capital expenditure, this has been factored into the purchase price as reflected in the–

(i)valuation obtained prior to the acquisition;

(ii)the budget prepared by the REIT manager; and

(iii)disclosures in the report of the structural engineer obtained on the condition of the real estate to be acquired.

(8)Despite paragraph (7), an I-REIT may acquire a real estate which is not fully rented at the time of acquisition where—

(a)the REIT manager reasonably believes that there is good potential to secure tenants within a reasonable period of time at a commercial rate;

(b)any capital expenditure required to be incurred to enhance the real estate and secure tenants would not materially affect the level of distributions or the yield to REIT securities holders; and

(c)the REIT manager has provided a certification for the purposes of paragraph

(d)and (b) to the trustee prior to the acquisition.

(9)The trustee and the REIT manager shall, where the real estate acquired is leasehold, ensure that—

(a)at the time of entering into the lease, the lease has a remaining term of at least twenty five years;

(b)prior to entering into the lease, a certificate by a structural engineer has been obtained in respect of the real estate;

(c)the real estate has been valued as a leasehold; and

(d)the documentation to record the lease or transfer of lease is lodged for registration.

(10)Where a real estate asset is disposed by the trustee of an I-REIT or a new issue of REIT securities has been made, such disposal or acquisition shall not constitute a breach of obligations under paragraph (6) if within a period of one year from the completion of the disposal or from the issue of REIT securities, the trustee on behalf of the I-REIT and at the request of the REIT manager either acquires additional or substitute real estate assets or makes an additional distribution to REIT securities holders so as to reduce its total assets.

(11)Subject to paragraph (12), the trustee of an I-REIT and the REIT manager shall ensure that investments in cash, deposits, bonds and money market instruments are spread across a number of issuers, securities and instruments to ensure that not more than five percent of the total asset value is exposed to any one issuer or institution or to members of the same group.

(12)The restriction under paragraph (11) shall not apply to deposits, bonds or securities issued by or guaranteed by the Government or to deposits with a banking institution licensed in Kenya.

(13)Failure by the trustee and the REIT manager to spread the investments in accordance with paragraph (11) shall not, where the limit is exceeded but rectified within a period of thirty days from the day on which the limit was exceeded, constitute a breach.

(14)The REIT manager may subject to the terms of the trust deed and where not specifically authorized by the trust deed, with the consent of the REIT securities holders request that the trustee of an I-REIT invest up to a maximum of ten percent of the total asset value in a wholly owned and controlled company of the REIT manager carrying out real estate related activities including—

(a)property management;

(b)REIT management;

(c)property maintenance or design or the provision of services to tenants or to the I-REIT;

but shall not include the provision of mortgages or finance.

(15)For the purpose of determining the level of the investment that can be made under this regulation, the percentage shall be calculated by reference to the amount of the proposed investment and the total asset value at the date on which the investment is made.

66. Consequences of failure to invest in real estate within one hundred and eighty days

(1)Where an investment in real estate has not been completed in accordance with regulation 65(4) within one hundred and eighty days, the trustee shall, within fourteen days after the expiry of the period for investment refund in full all monies paid into the fund by investors in the REIT securities together with any interest or earnings on the amount subscribed and without any deductions except the amounts required by law in respect of interest or other income.

(2)Failure to complete the nominated investment in real estate shall not constitute an offence but failure to refund monies within the specified period shall constitute an offence on the part of the promoter, the trustee and the REIT manager.

67. Acquisition and disposal or real estate and price

(1)The trustee of an I-REIT shall not—

(a)acquire a real estate at a price which exceeds the price in the valuation report by more than ten percent unless the acquisition is approved by a special resolution of the REIT securities holders; or

(b)dispose of a real estate at a price lower than ninety percent of the value assessed in the valuation report unless the disposal is approved by a special resolution of the REIT securities holders.

(2)Except where the disposal of an asset is for the purpose of terminating or winding up an I-REIT, the trustee shall not enter into a contract for the disposal of an asset where such disposal would exceed fifty percent of the total asset value, unless it has been approved by an ordinary resolution of REIT securities holders.

(3)A REIT manager shall not recommend and the trustee of an I-REIT shall not enter into a binding contract or a contract which may only be terminated on the payment of penalties in connection with a transaction to which paragraph 1(a) or (b) unless the trustee has obtained the approval of the REIT securities holders in accordance with paragraph (1).

68. Partial ownership of properties

(1)Interests in a real estate acquired as an asset by the trustee of an l-REIT including where the investment by the REIT is held through its investment in investee companies or investee trusts shall—

(a)not consist of partial ownership of real estate assets; and

(b)in the case of a real estate which is on freehold land, be wholly owned and controlled, from the time of acquisition, by the trustee who shall exercise all rights, interests and benefits normally enjoyed by an owner without interference.

(2)In the case of a real estate asset which is on leasehold land, the trustee shall, from the time of entering into the lease, have the sole rights, interests or benefits normally enjoyed by a lessee subject to the terms of the lease and the rights of the lessor.

(3)The provisions of paragraphs (1) and (2) shall not apply to assets acquired through the purchase of shares in a property company or REIT securities of other I-REITS permitted under these Regulations and which are not investee companies or investee trusts.

(4)Total investments by an I-REIT in shares in property company shares or REIT securities of other I-REITS which are not investee companies or investee trusts shall not in total exceed ten percent of the total asset value where the percentage is calculated based on the value of the investment and the total net asset value as at the time of acquisition of the shares or REIT securities.

69. I-REIT income requirement

(1)An I-REIT shall in each financial year alter the second anniversary of its authorization, earn at least seventy percent of its income from rent, licence fees or access or usage rights or other income streams of a similar nature generated by eligible investments in income producing real estate.

(2)Any profits or capital gains from the sale of real estate shall be excluded in determining the income under paragraph (1).

(3)An I-REIT shall not be in breach of the income requirements under paragraph (1) if the I-REIT disposes off a real estate asset that has been an asset of the real estate investment trust for at least three years and—

(a)reinvests the funds received from disposal of the income producing real estate assets within a period of two years from the completion of the disposition; or

(b)makes a distribution to REIT securities holders to reduce its assets.

70. Real estate construction and development activities by an l-REIT

The trustee of an I-REIT may, on the recommendation of the REIT manager and subject to any limitations in its scheme documents and meeting the requirements of these Regulations, acquire a real estate under construction, vacant land for development or carry out construction on vacant land acquired for the purposes of development:Provided that:

(a)the total acquisition value of all the land on which the construction is to be undertaken by the trust together with the cost of the construction on that land and the acquisition of real estate under construction at any time does not exceed fifteen percent of the total asset value;

(b)the total value at acquisition, cost of vacant land held for development and construction by the I-REIT and the value of real estate which is not producing a commercial income at any time does not exceed ten percent of total asset value;

(c)vacant land acquired for the purpose of development by the I-REIT shall only be held for a maximum period of three years at the conclusion of which it shall be developed and generate commercial income or sold;

(d)income from other assets are sufficient to ensure that the earnings of the fund per unit during the construction or development period are not substantially diluted as shall be, determined by the Authority;

(e)the contract for any acquisition of property under construction is subject to the completion of the building and for an agreed fixed price;

(f)the REIT manager reasonably believes that the prospects for obtaining tenants for any property being constructed or developed at a commercial rent are good; and

(g)development contracts are carried out on the best available terms and at arm's length transactions.

71. Maximum level of borrowing by an I-REIT

(1)The trustee may, subject to any restriction or lesser limit imposed under the scheme documents, enter into a borrowing arrangement—

(a)on the initiative of the trustee, where such borrowing is required to preserve the value of the assets of the trust and is in the best interests of the REIT securities holders; or

(b)if requested to do so by the REIT manager to give effect to the objectives of the scheme, to acquire real estate assets or to undertake capital expenditure or refinance an existing borrowing.

(2)The trustee may provide security over the assets of the trust to secure the borrowings under paragraph (1).

(3)Despite paragraphs (1) and (2), the trustee shall ensure that any borrowing or provision of security is not prejudicial to the interests of the REIT securities holders.

(4)The total borrowings entered into by the trustee on behalf of an I-REIT or by any investee company or investee trust shall not exceed, in aggregate, at the time the liability is incurred, thirty five percent of the total asset value:Provided that the limit of the total borrowing shall not operate to prevent the rolling over or refinancing of any debt and the amount rolled over or refinanced is not more than the amount originally borrowed.

(5)Despite paragraph (4), the trustee may, on its own initiative or on the recommendation of the REIT manager and with the approval of REIT securities holders by way of an ordinary resolution, borrow up to a maximum of forty percent of the total asset value for a temporary purpose for a term not exceeding six months.

(6)Failure by the trustee to comply with the borrowing limitation set out in the scheme documents or this regulation shall not constitute an offence.

(7)Despite paragraph (6) and where the trustee exceeds the borrowing limits specified in this regulation—

(a)the I-REIT may cease to be classified as a real estate investment trust scheme for taxation purposes;

(b)subject to the scheme documents, the REIT securities holders may institute a cause of action against the trustee or the REIT manager; and

(c)the Authority may revoke the authorisation issued to the REIT under regulation 18.

72. Distribution requirements of an I-REIT

(1)The REIT manager shall only recommend and the trustee may only make distributions to REIT securities holders from realized gains, realized income or from cash held in the fund which is surplus to the investment requirements of the trust.

(2)A trustee of an I-REIT shall, on the recommendation of the REIT manager, subject to a higher minimum being specified in the scheme documents and to the provisions (of these Regulations, distribute, within four months after the end of each financial year, a minimum of eighty percent of the net after tax income, if any, of the fund from sources other than from realized capital gains on the disposal of real estate assets.

(3)Net after tax income under paragraph (2) shall be calculated in accordance with the IFRS and tax standards applying in Kenya based on the assumption that, for calculation purposes only, the REIT is subject to the general income tax provisions applicable generally to trusts and the REIT is entitled to similar deductions and allowances, including depreciation.

(4)The trustee shall make the distribution of income on the basis proposed by the REIT manager after the trustee has taken into consideration the—

(a)income for the period;

(b)total returns for the period;

(c)liabilities and financial obligations;

(d)cash flow available for distribution;

(e)need to preserve and maintain the condition of the assets of the real estate investment trust and scheme and to provide for asset replacement;

(f)stability and sustainability of distribution of income;

(g)investment objective of the I-REIT;

(h)distribution policy of the I-REIT; and

(i)requirements of the scheme documents.

(5)The trustee may, where the distribution is proposed other than on an annual basis based on audited financial accounts, require an audit to be undertaken for the purpose of determining the matters to be considered under paragraph (4) or paragraph (10).

(6)Where the trustee is of the opinion that the level of distribution recommended by the REIT manager is not in the interests of REIT securities holders, the trustee shall call a meeting of REIT securities holders for the purposes of approving, by way of ordinary resolution, a lower distribution.

(7)The REIT manager shall, where it recommends a distribution lower than eighty percent, submit to the trustee a statement of—

(a)the reasons for proposing a lower distribution; and

(b)when that minimum distribution level of eighty percent is likely to be restored.

(8)Failure by trustee to distribute the income under this regulation as a consequence of the REIT manager not proposing or REIT securities holders not voting to receive a distribution which is below eighty percent, shall not constitute in a breach of these Regulations.

(9)Despite paragraph (8) and where the trustee fails to distribute income under this regulation—

(a)the I-REIT may cease to be classified as a real estate investment trust scheme for taxation purposes;

(b)subject to the scheme documents, the REIT securities holders may institute a cause of action against the trustee or the REIT manager; and

(c)the Authority may revoke the authorization issued by it under these Regulations.

(10)The REIT manager may propose and the trustee may pay a distribution in excess of the current income where the REIT manager, after consultation with the trustee, certifies on reasonable grounds that—

(a)immediately after making such distribution, the l-REIT shall be able to pay, out of the assets of the fund, the liabilities incurred on behalf of the trust as and when they fall due and the projected liabilities for at least the next year; and

(b)the payment will not adversely affect the capacity to maintain and preserve the assets.

(11)The REIT manager shall—

(a)disclose to the trustee, the basis of calculation of the distribution of income proposed under paragraph (10); and

(b)report such proposal as part of the continuing disclosure requirements under these Regulations.

(12)Nothing in these Regulations shall be construed as preventing the proposal or making of distributions, or the trust deed from providing for the making of distributions more than once as in each financial year.

73. Distribution of realized capital gains by an I-REIT

(1)A REIT manager or trustee on the recommendation of the REIT manager may, and subject to the provisions of the scheme documents, distribute realized capital gains.

(2)Any realized capital gains may be retained and invested in income producing real estate:Provided that any realized capital gains which have not been invested within a period of two years from the date of realization shall be distributed to REIT securities holders within two months of the second year of such realization.

(3)Failure by the trustee to make the minimum distribution specified in paragraph (2) shall not constitute an offence.

(4)Despite paragraph (3), where the trustee or REIT manager fails to make a distribution under paragraph (2)—

(a)the I-REIT may cease to be classified as a real estate investment trust scheme for taxation purposes;

(b)subject to the scheme documents, the REIT securities holders may institute a cause of action against the trustee or the REIT manager; and

(c)the Authority may revoke the authorization issued by it under these Regulations.

74. Minimum retained investment by the promoter and lock-in period

(1)A promoter of an I-REIT who sells or transfers any real estate or proposes to transfer or sell any real estate to the trustee of the I-REIT within a period one year of the establishment of the I–REIT shall maintain an investment in the I-REIT of at least twenty percent of the net asset value as at the date of the initial offer of REIT securities in the I-REIT for the first year from the latter of the close of the offer or, if the issue is to be listed, from the date of the first listing of the REIT securities and the date of transfer of the real estate to the I-REIT:Provided that where a D-REIT converts to an I-REIT such restriction shall not apply where the requirements of regulation 84 have been or are being complied with.

(2)The REIT securities held by the promoter shall not be sold or transferred during the lock in period except where the transfer is as a result of the death or insolvency of the promoter.

(3)The promoter may, after the—

(a)first year of the close or listing, reduce its holding to a minimum of ten percent; and

(b)second anniversary of the close or listing, reduce its holdings to zero percent.

(4)The trustee shall not register any transfer by the promoter if the transfer would result in the holding of REIT securities by the promoter below the minimum level which the promoter is required to retain in the relevant period.

Part XI – SPECIFIC REQUIREMENTS FOR D-REITS

75. Investments and objectives of a D-REIT

The investments of a D-REIT scheme shall be relevant, appropriate and consistent with the investment objectives of the real estate investment trust and scheme as set out in the offering memorandum and the scheme documents.

76. Eligible investments for a D-REIT

(1)The trustee of a D-REIT may, subject to any limitations specified in the scheme documents and if requested by the REIT manager—

(a)invest directly in eligible real estate in accordance with these Regulations;

(i)the D-REIT trustee has the absolute power at any time to appoint and, without incurring any liability, to remove the directors;

(ii)the trustee of the REIT, the company, the directors and the shareholders have entered into a shareholders agreement;

(iii)the REIT manager of the D-REIT is appointed as the manager of the investments of the investee company;

(iv)the Memorandum and Articles of Association of the investee company and the terms of the shareholders agreement limit the objectives of the investee company and the powers of the company and directors and impose the same obligations on the company, its directors and the manager of the trust as if the investee company was a D-REIT and an authorized scheme under the Act and these Regulations and was subject to the same obligations and restrictions as are imposed by these Regulations;

(v)the provisions of these Regulations on the carrying out of a valuation, reporting and audit apply to the investee company as if the investee company was a D-REIT and an authorized scheme under these Regulations;

(vi)the investee company invests directly in the eligible real estate and is recorded on the certificate of title or certificate of lease or register as the sole owner;

(c)invest in eligible real estate assets through an investee trust in which the trustee of the D-REIT in its capacity as trustee is the sole beneficiary and has absolute control of voting and right to appoint and remove the trustee of the investee trust and where—

(i)the investee trust is formed under the laws of Kenya as an unincorporated common law trust;

(ii)the D-REIT trustee is also the trustee of the investee trust;

(iii)the REIT manager of the D-REIT is also the manager of the investee trust;

(iv)the terms of the trust deed for the investee trust limit the objectives of the investee trust, the trustee's powers and impose the same obligations on the trustee and the manager of the trust as if the investee trust was a D-REIT and an authorized scheme under these Regulations and subject to the same obligations and restrictions as are imposed under these Regulations;

(v)the provisions of these Regulations on the carrying out of a valuation, reporting and audit apply to the investee trust as if the investee trust was a D-REIT and an authorized scheme under the Act and these Regulations;

(vi)the trustee as trustee for the investee trust invests directly in the eligible real estate and is recorded on the certificate of title or certificate of lease or register as the sole owner.

(d)invest in cash, deposits, bonds or securities and money market instruments;

(e)invest in a wholly beneficially owned and controlled company which conducts real estate related activities; and

(f)invest in income producing assets including shares in property companies incorporated in Kenya whose principal business is real estate related or REIT securities in other Kenyan real estate investment trust schemes.

(2)The requirement for the appointment of a sole trustee shall not be applicable where a secondary disposition trustee is appointed.

(3)The trustee and the REIT manager shall only invest in accordance these Regulations.

(4)The promoter of a D-REIT and the REIT manager shall—

(a)propose and specify, in the offering memorandum, at least one real estate asset that is already vested in or proposed to be acquired and vested in the trust and for which all legal registration requirements will have been completed within one hundred and eighty days of the closing of' the initial offer;

(b)specify in the offering memorandum, the initial development or construction project which the D-REIT proposes to undertake; and

(c)include a timetable, budget and a project plan for the initial development or construction the D-REIT proposes to undertake.

(5)Where—

(a)the promoter and REIT manager fail to comply with the requirements of paragraph (4)(a) during the intervening period from the close of the initial offer or issue referred to in paragraph (4)(a); and

(b)the registration requirements are not complete and the proposed real estate asset are not vested in the trust,

the funds raised by the initial offer and issue of REIT securities shall only be invested in bank deposits or other liquid investments with a duration not exceeding one hundred and eighty days.

(6)A D-REIT shall, within one year of the date of its authorization, invest at least thirty percent of the total asset value directly in—

(a)development and construction projects; or

(b)income producing real estate which the D-REIT has developed or constructed.

(7)A D-REIT shall not be in breach of paragraph (6) if the D-REIT disposes the real estate asset and within one year of such disposal, the D–REIT—

(a)acquires a substitute real estate asset; or

(b)makes a further distribution to REIT securities holders so as to reduce its assets.

(8)The trustee and the REIT manager shall, for the purposes of giving effect to the requirement for investment predominantly in development and construction projects for either sale, retention or leasing as income producing property, ensure that the real estate acquired or to be acquired as an asset of the D-REIT—

(a)can be developed in the manner and for the proposed use;

(b)is free from encumbrances at the time of acquisition except for any charges entered into by the trustee as authorized by the trust deed and these Regulations; and

(c)has reasonable prospects when the development or construction is completed for sale for a profit or for leasing as income producing real estate.

(9)The trustee and the REIT manager shall, where the real estate acquired is leasehold, ensure that—

(a)at the time of entering into the lease, the lease has a remaining term of at least twenty five years;

(b)the real estate has been valued as leasehold; and

(c)the lease is lodged for registration.

(10)Subject to paragraph (11), the trustee and the REIT manager shall ensure that investments in cash, deposits, bonds, securities and money market instruments shall be spread across a number of issuers, securities and instruments so that not more than five percent of the total asset value is exposed to any one issuer or institution or to members of the same group.

(11)The restriction under paragraph (10) shall not apply to deposits, bonds or securities issued by, or guaranteed by the Government of Kenya or to deposits with a banking institution licensed in Kenya.

(12)Failure by the trustee and the REIT manager to spread the investments in accordance with paragraph (10) shall not, where the limit is exceeded but rectified within a period of thirty days from the day on which the limit was exceeded, constitute a breach.

(13)Subject to the terms of the trust deed, the REIT manager may, with the consent of the REIT securities holders, request that the trustee of a D-REIT invest up to a maximum of ten percent of the total asset value in a wholly owned and controlled company carrying out real estate related activities including—

(a)property management;

(b)REIT management;

(c)property maintenance or design; or

(d)the provision of services to tenants or to the D-REIT;

but shall not include the provision of mortgages or finance except to the extent that the D-REIT is authorized by these Regulations to provide mortgages or finance.

(14)For the purposes of determining the level of the investment which can be made under this regulation, the percentage shall be calculated by reference to the amount of the proposed investment and the value of the total asset value at the date that the investment is made.

77. Consequences of failure to invest in real estate within one hundred and eighty days

(1)Where an investment in real estate has not been completed of the period specified under regulation 76, the trustee shall call a meeting of the REIT securities holders within twenty eight days of the expiry of the period for investment for the purpose of—

(a)considering the report by the REIT manager on the reason for the delay in completion;

(b)the implications for the holders of investment in the D-REIT;

(c)determining, by special resolution whether—

(i)the period for registration should be extended and the period of extension; or

(ii)all monies paid into the fund together with any interest or earnings should be refunded within fourteen days of the date of the meeting; and

(iii)what other action should be taken by the trustee or REIT manager.

(2)Failure by the trustee to—

(a)complete the proposed investment in real estate shall not constitute an offence; or

(b)call the required meeting or to refund monies within the specified period shall constitute an offence on the part of the promoter, the trustee and the REIT manager.

78. Acquisition and disposal of a real estate and price

(1)A D-REIT shall not—

(a)acquire real estate at a price which exceeds the price in the valuation report by more than ten percent unless the acquisition is approved by REIT securities holders; or

(b)dispose real estate at a price lower than ninety percent of the value assessed in the valuation report unless the disposal is approved by REIT securities holders.

(2)Except where the disposal of an asset is for the purpose of terminating or winding up of a D-REIT, the trustee shall not enter into a contract for the disposal of an asset where such disposal exceed fifty percent of the total asset value, unless it has been approved by an ordinary resolution of REIT securities holders.

(3)A REIT manager shall not recommend and the trustee of a D-REIT shall not enter into a contract or a contract which may only be terminated on the payment of penalties in connection with a transaction to which paragraph 1(a) or (b) unless the trustee has obtained the approval of the REIT securities holders in accordance with paragraph (1).

(4)Any contract entered into under paragraph (3) shall be based on a valuation report.

79. Partial ownership of real estate

(1)Interests in real estate acquired as assets of a D-REIT shall—

(a)not consist of partial ownership of real estate assets;

(2)In the case of real estate which is on leasehold land, then from the time of the commencement of the lease entered into by the trustee on behalf of the scheme, the trustee shall have sole rights, interests or benefits normally enjoyed by a lessee, subject only to the terms of the lease and the rights of' the lessor.

(3)The provisions of paragraphs (1) and (2) shall not apply to assets acquired through the purchase of shares in a property company or REIT securities permitted under theseRegulations and which are not investee companies or investee trusts.

(4)The limitation on partial ownership of' real estate shall not apply to a D-REIT in the case of real estate which the D-REIT—

(a)has developed and constructed and sold part of the interest in the completed project to another person; or

(b)has partial ownership—

(i)as a consequence of the D-REIT entering into a term or instalment sale or other transaction of a similar nature; or

(ii)where in connection with an acquisition or sale, sub-division of the real estate is in progress.

(5)The total investments by a D-REIT in property company shares or REIT securities which are not in investee companies or investee trusts shall not, in total, exceed ten percent of the total asset value where the percentage is calculated based on the value of the investment and the total net asset value at the time of' acquisition of the shares or REIT securities.

80. Construction and development activities by a D-REIT

The trustee of a D-REIT may, subject to any limitations in the scheme documents and on the recommendation of the REIT manager acquire—

(a)vacant land for development;

(b)real estate under construction; or

(c)land for redevelopment; and enter into contracts for or carry out development and construction.

81. Maximum levels of borrowings by a D-REIT

(1)The trustee of a D-REIT may, subject to any restriction or lesser limit imposed under the scheme documents, borrow or enter into financing arrangements—

(a)on its own initiative where such borrowing is required to preserve the value of the assets of the trust and is in the best interests of the REIT securities holders; or

(b)if requested to do so by the REIT manager,

to give effect to the objectives of the scheme to acquire real estate assets, to undertake development and construction, to undertake capital expenditure or to refinance any existing borrowing.

(2)The trustee may provide security over the assets of the real estate investment trust and scheme to secure the borrowings under paragraph (1).

(3)Borrowings entered into by the trustee on behalf of a D-REIT or by any investee company or investee trust shall not exceed, in aggregate, at the time the liability is incurred, sixty percent of the total asset value:Provided that the limit in borrowings shall not operate to prevent the rolling over or refinancing of any debt where the amount rolled over or refinanced is not more than the amount originally borrowed, and

(4)Despite paragraph (3), the trustee may, with the approval of REIT securities holders by way of an ordinary resolution borrow or enter into a financing arrangement up to a maximum of seventy five percent of the total asset value, for a temporary purpose for a term not exceeding six months.

(5)Failure by the trustee to comply with the borrowing limitation under this regulation shall not constitute an offence.

(6)Despite paragraph (5) and where the trustee exceeds the borrowing limits specified in this regulation—

(a)D-REIT may cease to be classified as a real estate investment trust scheme for taxation purposes;

(b)subject to the scheme documents, the REIT securities holders may institute a cause of action against the trustee or the REIT manager; and

(c)the Authority may revoke the authorization issued to the REIT under regulation 18.

82. Distribution requirements of a D-REIT

(1)The trustee shall make the distributions of income upon the recommendations of the REIT manager and in accordance with the scheme documents.

(2)In making distributions under paragraph (1), the trustee shall take into consideration the—

(a)income for the period;

(b)total returns for the period;

(c)liabilities and financial obligations;

(d)cash flow available for distribution;

(e)need to preserve and maintain the condition of the assets of the fund and to provide for asset replacement;

(f)stability and sustainability of distribution of income;

(g)investment objective of the D-REIT;

(h)distribution policy of the D-REIT; and

(i)requirements of the scheme documents.

(3)The trustee may where the distribution is proposed other than on an annual basis based on audited financial accounts require an audit to be undertaken for the purpose of determining the matters to be considered paragraph (3) and paragraph (5).

(4)Where the trustee is of the opinion that the level of distribution recommended by the REIT manager is not in the interests of REIT securities holders, the trustee shall call a meeting of REIT securities holders to approve, by way of ordinary resolution, a lower distribution.

(5)A REIT manager may propose and the trustee may make distributions in excess of the current income where the REIT manager, upon consultation with the trustee, certifies, on reasonable grounds that—

(a)immediately after the making of such distribution the D-REIT shall be able to pay from the assets of the fund, the liabilities incurred on behalf of the trust as and when they fall due and the projected liabilities for at least the next year; and

(b)the payment shall not adversely affect the capacity to maintain and preserve the assets of the REIT.

(6)The REIT manager shall, if the REIT manager proposes payment of distributions in excess of the current income—

(a)disclose to the trustee the basis of the calculation of the distribution proposed under paragraph (5); and

(b)report such proposal as part of the continuing disclosure requirements under these Regulations.

83. Distribution of realized capital gains by a D-REIT

(1)Subject to the scheme documents, the REIT manager may recommend to the trustee on and the trustee may distribute any realized capital gains.

(2)Any capital gains may be retained and invested in new acquisitions or development and construction or buy to rent housing income producing real estate:Provided that any realized capital gains which have not been invested within a period of two years from the date of realization shall be distributed to REIT securities holders within two months of the second year of such realization.

(3)Where the trustee fails to make the distribution under paragraph (2)—

(a)the D-REIT may cease to be classified as a real estate investment trust scheme for taxation purposes;

(b)subject to the scheme documents, the REIT securities holders may institute a cause of action against the trustee or the REIT manager; and

(c)the Authority may revoke the authorization issued to it under these Regulations.

84. Minimum retained investment by the promoter and lock-in period

(1)A promoter who sells or transfers any real estate or proposes to transfer or sell any real estate to the trustee of the D-REIT within a period one year of the establishment of the D-REIT shall, subject to any requirements in the scheme documents requiring a higher level of investment, maintain an investment, of at least ten percent of the net asset value for two years from the close of initial the offer or if the issue is to be listed from the date of first listing of the REIT securities.

(2)The REIT securities held by the promoter shall not be sold or transferred during the lock in period except where the transfer is as a result of the death or insolvency of the promoter.

(3)A promoter may, after the second anniversary of the close of the initial offer or issue, reduce its holding to zero percent.

(4)The trustee shall not register any transfer by the promoter, if the transfer results in the promoter holding REIT securities which are below the minimum level the promoter is required to retain during the lock in period.

Part XII – CONVERSIONS OF REITs

85. Requirements for conversion

(1)A REIT manager of a D-REIT may apply to the Authority to convert the D-REIT into an I-REIT.

(2)The REIT manager shall not make an application under paragraph (1) unless—

(a)a conversion prospectus or offering memorandum, which meets the requirements for an I-REIT, is submitted to and approved by the Authority and distributed to existing REIT securities holders prior to the holding of the meeting of REIT securities holders under paragraph (b);

(b)the proposed conversion has been approved by the trustee and by a special resolution passed at a meeting of REIT securities holders held not more than six months prior to the proposed conversion date;

(c)the scheme documents have been amended to comply with the requirements of an I-REIT;

(d)the REIT manager demonstrates to the Authority that the D-REIT shall, upon conversion, be able to meet the eligible asset requirements for an I-REIT; and

(e)the REIT manager demonstrates to the Authority that at least fifty percent of the total value of the real estate assets of the fund are—

(i)subject to long-term leases; or

(ii)where the nature of the real estate asset is such that long term leases are not the norm, the real estate assets have been income producing for at least six months.

(3)Regulation 17 shall apply to the application for conversion as if the application was for the authorization as an I-REIT.

86. Conversion from an open to a closed REIT or from a restricted to an unrestricted REIT

(1)Except where the scheme documents provide otherwise a REIT Manager may make an application to the authority for the conversion of—

(a)an open ended fund restricted issue REIT to a closed ended fund;

(b)a closed ended fund restricted issue REIT to an open an ended fund; and

(c)a restricted issue I-REIT or offer scheme to an unrestricted I-REIT.

(2)A REIT manager shall not make an application for conversion under paragraph (1) unless—

(a)the conversion has been approved by the trustee and by a special resolution passed at a meeting of REIT securities holders held not more than six months prior to the proposed conversion date;

(b)the scheme documents have been amended to comply with the requirements of the Act and these Regulations as regards the type of fund or REIT to which it is proposed to convert;

(c)a conversion offering memorandum or prospectus, which meets the requirements of these Regulations as regards the type of fund or REIT to which it is proposed to convert, is filed with and approved by the Authority and distributed to existing REIT securities holders prior to the holding of the meeting of REIT securities holders to consider the resolution to approve the conversion.

(3)Regulation 17 and 37 shall apply to the application for conversion under paragraph (1) as if the application was for an authorization as a real estate investment trust scheme and for approval of a prospectus or offering memorandum respectively.

Part XIII – ADVERTISING

87. Advertising

(1)A REIT manager shall not issue or cause to be issued any advertisement for or in connection with the scheme unless the contents of the advertisement have been approved by the trustee and the Authority.

(2)For the purposes of paragraphs (1), "advertisement" shall not include any publication of the issue, sale, repurchase or redemption prices of REIT securities.

(3)An advertisement in respect of a real estate investment trust scheme shall set out a summary of the rights of the REIT securities holder as provided for in the scheme documents include a warning statement that—

(a)the price and value of REIT securities and the income from REIT securities, may fluctuate;

(b)the REIT securities holder in a restricted offer REIT may have limited or no rights to redemption and in certain circumstances the right of a REIT securities holder to redeem the REIT securities may be suspended; and

(c)if the REIT securities are those of a unrestricted offer I-REIT, a statement that the security holder is not entitled to require the trustee to redeem their REIT securities compulsorily and their exit would in ordinary circumstances be through sale on an exchange at a price determined by the market which may not reflect the net asset value per unit.

(4)A warning statement under paragraph (3) shall be printed in the same font size as the other text in the advertisement.

88. Inclusion of performance data

(1)The Authority may require a REIT manager to submit to it, a justification of the calculation, if performance data or estimated yield is quoted in—

(a)a report;

(b)an advertisement; or

(c)any other invitation to the public to invest in a real estate investment trust scheme.

(2)A forecast of the performance of the real estate investment trust scheme shall not be included in any advertisement or in any prospectus or offering memorandum.

(3)For the purposes of this regulation, the publication of a prospective yield shall not constitute a forecast of performance.

Part XIV – ALTERATION OF SCHEME DOCUMENTS

89. Alterations to REITS documentation

(1)A person shall not alter the scheme documents of a scheme except—

(a)by a special resolution of REIT securities holders; and

(b)with the prior approval of the Authority.

(2)Despite paragraph (1), the REIT manager and the trustee may alter the scheme documents without consulting the REIT securities holders where the trustee certifies, in writing, in respect of each proposed alteration that in the opinion of the trustee, the proposed alteration—

(a)is necessary to enable compliance with fiscal or other statutory or official requirements;

(b)does not materially prejudice the interests of the REIT securities holders;

(c)does not, to any material extent, release the trustee, the REIT manager or any other person from any liability to REIT securities holders;

(d)does not increase the costs and charges payable from the assets of the real estate investment trust; or

(e)is necessary to correct a manifest error.

Part XV – FEES AND TERMS OF THE TRUSTEE THE REIT MANAGER AND OTHER PARTIES

90. Remuneration of the trustee

(1)The trustee shall be remunerated by an annual fee charged to the fund which may be paid in instalments during the course of the year.

(2)The trustee shall be entitled to first priority for the payment of the fees and expenses out of the fund.

(3)The scheme documents shall provide for the payment of fees in accordance with these Regulations.

91. Remuneration of a REIT manager

The REIT manager of a REIT may be remunerated—

(a)by way of an annual fee charged to the fund;

(b)through an issue of REIT securities in the REIT;

(c)by way of a profit share from—

(i)the sale of the real estate in the case of a D-REIT;

(ii)increase in net earnings of the REIT or achievement of earnings above a minimum specified hurdle rate; or

(iii)the realization of value on the conversion to an I-REIT or listing; or

(d)by a combination of paragraphs (a) to (c).

92. Deferment of fees payable to a REIT manager

A REIT manager may defer some or all the fees payable to it:Provided that:

(a)the fees shall be deferred at the rate otherwise payable;

(b)no interest shall be payable in respect of any deferred payment, and the effect or potential effect of such deferral on returns, distributions and performance of the scheme shall be clearly disclosed in any prospectus or offering memorandum and in the reports prepared under regulation 101; and

(c)in the case of an unrestricted offer I-REIT the deferral shall not exceed a period of three years.

93. Basis for remuneration of trustee and REIT manager

(1)The basis of calculating the fees and the fees payable from time to time shall be specified in the—

(a)scheme documents; and

(b)reports prepared from time to time.

(2)The fees payable to the REIT manager and the trustee shall, despite the provisions of the scheme documents, be fair, reasonable and based on the—

(a)roles, duties and responsibilities of the REIT manager or the trustee;

(b)interests of the REIT securities holders;

(c)nature of the real estate investment trust;

(d)extent of the services provided by the REIT manager or trustee;

(e)size and composition of the assets of the fund;

(f)success, in the case of a REIT manager, in meeting the investment objectives; and

(g)need to protect, in the case of a trustee, the interests of REIT securities holders.

(3)Where the trustee is of the opinion that any proposed material increase in fees or change in the method of calculating the fees charged by the REIT manager is not fair and reasonable, the trustee shall convene a meeting of the REIT securities holders.

(4)The trustee shall, at a meeting convened under paragraph (3), require the REIT manager to justify any increase in fee charged by the REIT manager or the basis of calculation.

(5)The REIT manager shall not, where the trustee calls a meeting under paragraph (3), ffect an increase or change the basis of calculating its fees unless agreed to by an ordinary resolution of the REIT securities holders.

(6)Despite any provision in the scheme documents, a REIT manager which is removed or dismissed for cause shall not be entitled to—

(a)any additional fee other than that otherwise payable on an annual or accrued basis up until the time of the removal or dismissal; or

(b)claim any penalty in respect of the dismissal, removal or otherwise ceasing to act.

94. Term of the REIT manager of an I-REIT and prohibition on penalties

(1)A REIT manager shall be appointed for a term of three years but may be reappointed for subsequent terms each not exceeding three years.

(2)An appointment or reappointment under paragraph (1) shall be subject to approval by an ordinary resolution of REIT securities holders.

(3)A REIT manager shall not be paid additional fees or penalty as a consequence of the REIT manager not being reappointed.

(4)For the purposes of paragraph (3), a fee which is payable—

(a)upon the REIT manager ceasing to act as such; or

(b)at a higher rate than otherwise payable including where it has been deferred and whether payable in cash, by way of a profit share or other means;

shall be deemed to be a penalty and void.

95. Recoverable expenses

(1)The right of the trustee or the REIT manager to deduct fees together with—

(a)a reasonable estimate of the recoverable expenses to be incurred; and

(b)details of the estimated management expense ratio,

for the first two years following authorization of the real estate investment trust scheme from the date of the prospectus or offering memorandum shall be set out in the prospectus or offering memorandum.

(2)The REIT manager shall, subject to the provisions of the scheme documents, be entitled, in addition to any fee payable, to recover and pay out of or charge to the fund, expenses or an appropriate apportionment thereof, directly related and necessary in operating and administering the real estate investment trust which may include—

(a)the costs and expenses incurred in—

(i)carrying out any capital works or authorized development or construction including the appointment of professional advisers; or

(ii)letting, maintaining, refurbishing of, developing, acquiring, investing, incurring income from or disposal of assets;

(iii)providing services in relation to the assets of the fund, including electricity, water, cleaning and security services, or services of a similar nature;

(iv)the modification of the scheme documents other than for the benefit of the REIT manager or the trustee:

(v)any meeting of REIT securities holders other than those convened for the benefit of the REIT manager or the trustee;

(vi)the insurance and maintenance of the real estate and other assets belonging to the fund;

(vii)the leasing and letting out of properties or otherwise earning income from the assets and related expenses;

(b)general taxes and other duties, levies or charges on the fund but not taxes levied on the trustee or REIT manager in their personal capacities;

(c)fees and other expenses properly incurred—

(i)by the auditor appointed for the fund;

(ii)by any project manager certifier appointed for the real estate investment trust or in respect of a particular project;

(iii)by the structural engineer appointed for the real estate investment trust or in respect of a particular project;

(iv)for the valuation of any investment or proposed investment or asset of the fund by an independent valuer for the benefit of the fund;

(v)in defending claims against the fund; or

(vi)in respect of any asset or investment or proposed investment of the fund;

(d)initial and ongoing listing expenses; and

(e)legal, accounting and the standard underwriting fees and expenses incurred in—

(i)arranging borrowing or other financing arrangements by the trustee on behalf of the real estate investment trust; or

(ii)the issuing of additional REIT securities but not the costs or expenses ordinarily associated with the redemption of REIT securities in an open ended fund or the issue of new or replacement REIT securities in such a fund.

(3)The overheads and costs of services expected to be provided by a REIT manager in its capacity as REIT manager shall not be charged to the fund.

(4)The trustee and the auditor shall review all expenses charged to the fund and only allow such expenses which they reasonably determine are legitimate and in accordance with standard arm's length commercial rates generally prevailing in Kenya.

(5)The trustee in addition to payment of its fees shall be entitled to reimbursement by the fund, of any costs and expenses reasonably incurred in the performance of its duties and responsibilities as a trustee including defending of the assets of the fund and the interests of the REIT securities holders.

Part XVI – MAINTENANCE OF BOOKS, ACCOUNTS AND RECORDS

96. Maintenance of books, accounts and records

(1)The trustee and REIT manager shall cause to be kept proper books, records and accounts in respect of the fund, the scheme and the real estate investment trust in accordance with the law and IFRS.

(2)The books, records and accounts kept under paragraph (1) shall—

(a)adequately account for the assets and liabilities of the real estate investment trust or incurred by the trustee or the REIT manager in relation to or in connection with real estate investment trust and the scheme; and

(b)contain sufficient information on all contracts and transactions entered into by the trustee or the REIT manager in relation to or in connection with the real estate investment trust and the scheme.

Part XVII – APPOINTMENT AND REMOVAL OF AN AUDITOR AND AUDIT OF ACCOUNTS

97. Appointment of an auditor and audit of accounts

(1)The trustee shall appoint an independent auditor to audit, at least annually, the accounts and financial statements of the real estate investment trust and the scheme.

(2)The auditor shall report on whether the trustee and the REIT manager have complied with these Regulations.

(3)The Authority may appoint an auditor to carry out an audit required under these Regulations where—

(a)the Authority is of the opinion that the auditor appointed by the trustee under paragraph (1) is not suitable; or

(b)the trustee has failed to appoint an auditor.

(4)The Authority may, if it is of the opinion that a special audit is necessary in the interests of the holders of REIT securities, appoint an auditor to conduct an audit.

(5)An auditor appointed under paragraph (2) and (3), shall be remunerated out of the assets of the real estate investment trust.

98. Removal of an auditor

(1)An auditor appointed under regulation 97 may be removed by the trustee—

(a)on its own instance; or

(b)at the request of the REIT securities holders by way of ordinary resolution passed at a meeting.

(2)The trustee shall, where an auditor is removed under paragraph (1) appoint another auditor in its place in accordance with these Regulations.

99. Notification to the Authority

The trustee shall—

(a)notify the Authority and the REIT manager within seven days of the removal or appointment of an auditor; and

(b)provide such information as the Authority may require, as to the circumstances of any removal or replacement.

100. Co-operation with the Auditor

The trustee, REIT manager, valuer, any property manager, any property manager certifier, structural engineer, legal or other adviser or party appointed in relation to the real estate investment trust scheme or by the REIT manager or in respect of a transaction entered into or proposed to be entered into shall—

(a)provide such assistance as the auditor may reasonably require to discharge its duties;

(b)allow the auditor, at all reasonable times, access to premises, documents, records, data and information including, access to software and systems;

(c)not interfere with the ability of the auditor to discharge its duties;

(d)not provide false or misleading information to the auditor;

(e)report to the auditor, any matter which may significantly affect the financial position of the real estate investment trust, scheme or the fund or the conduct of the audit;

(f)waive and not claim any right to confidentiality or to privilege, including legal professional privilege, in respect of any information, advice, documents or data provided to or prepared for or on behalf of the trustee or the REIT manager which has been paid for out of the assets of the fund or was obtained for the purposes of inclusion in any prospectus or offering memorandum; and

(g)take all reasonable steps to ensure that an employee or person appointed by it complies with the same requirements.

Part XVIII – PREPARATION OF PERIODIC REPORTS AND ACCOUNTS BY THE REIT MANAGER AND TRUSTEE

101. Preparation of semi-annual and annual reports

(1)A REIT Manager shall prepare or cause to be prepared on behalf of, and present to the trustee for the trustee's consideration, semi-annual and annual reports for the scheme including the accounts for the real estate investment trust during such periods.

(2)The reports prepared under paragraph (1) shall—

(a)be submitted to the trustee for approval;

(b)provide all the information necessary to enable the holders of REIT securities and potential investors to evaluate the performance of the real estate investment trust scheme; and

(c)be prepared in accordance with IFRS, the Act and these Regulations.

(3)The reports prepared under paragraph (1) shall contain the information specified under the Fifth Schedule and such other information as the Authority may require and shall include—

(a)in the case of—

(i)an annual report, audited financial statements certified by both the trustee and the REIT manager to be true and correct; and

(ii)semi-annual report, financial statements which may be audited but shall be certified by both the trustee and the REIT manager to be true and correct;

(b)the auditor's report for annual statements which shall include a compliance report; and

(c)a report of the Shariah adviser, where applicable.

(4)Any certification by the trustee and REIT manager shall be signed by the compliance officer of the trustee and in the case of the REIT manager, by the chief executive officer and at least one non-executive director.

102. Failure to prepare reports

(1)Where the REIT manager fails to prepare or cause the preparation of accounts and reports as required under the Act or these Regulations, the trustee shall, without relieving the REIT manager of any obligation—

(a)advise the Authority of the failure of the REIT manager; and

(b)cause the accounts and reports, other than the REIT manager's report, to be prepared as soon as possible at the expense of the REIT manager.

(2)The REIT Manager, any property manager, and any other person appointed by the REIT manager or the trustee in connection with the real estate investment trust scheme or any person whose fees or costs have been paid out of the fund or are recoverable from the fund, shall provide the trustee and any person appointed by the trustee to prepare the reports and accounts with such information, assistance and access to information and data as the trustee or the person appointed by the trustee may require.

103. Submission of reports to the Authority and REIT securities holders

(1)A REIT manager shall, in consultation with the trustee—

(a)submit to the Authority, a copy of—

(i)the first half financial year reports and accounts within thirty days of the end of the half year; and

(ii)the annual report and the audited accounts within three months of the end of the financial year;

(b)provide such other information, statements, books, records or other particulars as the Authority may require; and

(c)in the case of an unrestricted I-REIT publish in at least two daily newspapers of national circulation—

(i)the first half financial year and accounts within thirty days of the end of the first half of the financial year; and

(ii)the annual report and audited accounts within three months of the end of the financial year.

(2)The REIT manager shall send to every REIT securities holder, free of charge, a copy of—

(a)the first half financial year reports and accounts within thirty days of the end of the half year; and

(b)the annual report and the audited accounts within three months of the end of the financial year.

104. Distribution recommendations and statements

The REIT Manager shall, whenever a distribution, including any interim distribution is made, circulate to the Authority and to the REIT securities holders a notice of distribution and a statement authorized by the trustee which statement shall include details of—

(a)the source and nature of the distribution;

(b)the total returns of the real estate investment trust and scheme from income or capital gains;

(c)in the case of an I-REIT the percentage income distributed as calculated in accordance with Regulation 72 and if less than eighty percent the reasons why the proposed distribution is less than eighty percent; and

(d)the net asset value per unit prior to, and subsequent to, the making of the distribution.

Part XIX – NOTIFICATIONS AND REPORTING TO THE AUTHORITY

105. Notification and compliance report by the trustee

The trustee shall, in addition to any other requirement for notification under the Act or these Regulations, notify the Authority, within seven days of—

(a)its becoming aware of any failure, act or omission by the trustee, REIT manager, property manager including any person appointed by the REIT manager, the valuer or project manager certifier which constitutes or may constitute a breach of any provisions of the Act, these Regulations or the scheme documents and any steps taken by the trustee to rectify the breach as soon as possible;

(b)the appointment, removal or retirement of the—

(i)REIT manager;

(ii)auditor;

(iii)valuer;

(iv)project manager certifier;

(v)structural engineer; or

(vi)Shariah adviser;

(c)amendments to the trust deed;

(d)appointment or changes to the compliance officer of the trustee;

(e)amendments to any REIT manager agreement or other scheme document;

(f)acquisition or disposal of any real estate assets;

(g)any resolution passed to wind up the real estate investment trust;

(h)any resolution proposed to remove the trustee or the REIT manager; and

(i)the completion of the termination or winding up of the real estate investment trust.

106. Notification and compliance report by the REIT Manager

The REIT manager shall, in addition to any other requirement for notification under these Regulations, notify the trustee and the Authority, within seven days of—

(a)appointment or changes to the compliance officer of the REIT manager;

(b)appointment, removal or retirement of—

(i)the chief executive officer of the REIT manager; or

(ii)a director of the REIT manager; and

(c)its becoming aware of any failure, act or omission of the trustee, REIT manager including any person appointed by the REIT manager, any property manager, valuer, project manager certifier which constitutes or may constitute a breach of the provisions of the Act, these Regulations or the scheme documents and the steps taken by the REIT manager or any other party to rectify the breach as soon as possible.

107. Notification and compliance report by the auditor

An auditor shall, in addition to any other requirement for notification under the Act or these Regulations, notify the trustee and the Authority within seven days of becoming aware of any failure, act or omission of the trustee, REIT manager, including any person appointed by the REIT manager, any property manager, valuer, project manager certifier which constitutes or may constitute a breach of any provision of the Act, these Regulations or the scheme documents and the steps taken by the auditor or which the auditor has recommended be taken to rectify the breach as soon as possible.

108. Availability of reports

The Authority shall make available, for public inspection as soon as possible after filing, all the reports, notifications and continuing disclosure documents submitted to the Authority which relate to a real estate investment trust or scheme.

Part XX – ACQUISITION AND DISPOSAL OF ASSETS

109. Acquisition from promoter and connected parties

A trustee may, subject to compliance with the Act and these Regulations and any listing requirements, if authorized by the scheme documents, acquire or dispose real estate and related assets of the real estate investment trust from or to—

(a)the promoter of the scheme; or

(b)other connected persons or connected parties.

110. Additional acquisitions

(1)Upon the initial issue or offer of REIT securities to persons other than the promoter or persons connected with the promoter, the REIT manager shall, where there is an intention to acquire or dispose any real estate assets and prior to entering into any binding contract or any agreement that can only be terminated on the payment of consideration or of a penalty, obtain and submit to the trustee—

(a)a report from a structural engineer on the condition of the real estate assets, which report shall be made available to each valuer prior to the conduct of any valuation;

(b)a valuation report; and

(c)if the total consideration for the proposed acquisition from or disposal to a person who is not the promoter or connected person represents more than fifteen percent of the latest published net asset value, the approval by way of an ordinary resolution passed in a general meeting, of the holders of REIT securities; or

(d)if the total consideration for proposed acquisition from or disposal transaction to the promoter or a connected person represents more than five percent of the latest published net asset value of the trust, the approval by way of an ordinary resolution, passed in a general meeting of the holders of the REIT securities.

(2)Where, as part of the initial offer of REIT securities, it is proposed to acquire or dispose of any real estate assets, then prior to entering into any binding contract or any agreement that can only be terminated on the payment of consideration or of a penalty, the REIT manager shall comply with the requirements of paragraphs 1(a) and 1(b) above but shall not be required to comply with paragraphs 1(c) or 1(d).

Part XXI – APPOINTMENT OF A VALUER AND VALUATION OF ASSETS

111. Appointment of a valuer

(1)The trustee shall, in consultation with the REIT manager—

(a)prior to making an application to the Authority for authorization of a scheme, appoint a valuer to value the real estate assets which have been vested in the trust or acquired or are proposed to be acquired by trustee;

(b)ensure that, where necessary, an additional, alternative or substitute valuer is appointed on a timely basis in the event of—

(i)the retirement, removal or the valuer otherwise ceasing to act;

(ii)the valuer not being qualified to act; or

(iii)an additional valuation report being required; and

(c)where the real estate investment trust has assets which are not real estate assets and which are not in the form of cash, bank deposits or listed securities,

appoint a suitably qualified specialist independent professional valuer to undertake the valuation of those assets.

(2)The valuer shall be appointed for a term of not more than three years and, except with the prior approval of the Authority, shall not be reappointed as valuer of the scheme at the conclusion of such term or until the lapse of three years from the date of expiry of any prior term.

(3)The trustee shall, in consultation with the REITManager and where—

(a)for any reason, or in respect of any acquisition or disposal or a specific transaction, the valuer ceases to be independent; or

(b)the trustee is of the opinion that, given the nature of the asset the valuer does not have the required skills,

appoint another valuer for the specific purpose of conducting the required valuation.

(4)A person qualifies to be appointed as a valuer of real estate assets if that person—

(a)is registered and licensed as a valuer under the Valuers Act (Cap. 532);

(b)is independent and does not have a conflict of interest;

(c)provides real estate and other property valuation services on a regular basis;

(d)carries on business of valuation of real estate in Kenya;

(e)has been a member of the Institution of Surveyors, in good standing, for a period of at least of five years; and

(f)has in place and maintains professional liability insurance to cover its obligations.

(5)Where a specialist valuer is appointed in respect of assets other than real estate, only the provisions of paragraph (4)(a) and (f) shall apply to that valuer.

(6)A valuation report prepared by a valuer under these Regulations shall be addressed to the trustee and expressed to be for the benefit of the trustee as trustee of the real estate investment trust and the REIT securities holders as beneficiaries of the real estate investment trust.

(7)A trustee shall not appoint a valuer in respect of more than one scheme that is managed by the same REIT manager.

(8)A valuer shall not be considered to be independent under paragraph (4)(b) if—

(a)that valuer falls within the definition of a connected person;

(b)the valuer or its partners, directors, officers or key personnel hold REIT securities in the scheme;

(c)the valuer has financial, professional or other interests that could affect the ability of the valuer to render unbiased professional services to the trustee in relation to the scheme or its assets including any assets that it consider acquiring; or

(d)in the case of a valuation that is conducted in connection with the disposition, acquisition or proposed disposition or acquisition of an asset, the valuer has, within the two years immediately prior to the date of the valuation, undertaken or been retained to provide a valuation for the counterparty or proposed counterparty to the disposal or acquisition.

(9)A valuer shall—

(a)include in any valuation undertaken by that valuer, a declaration as to its independence and evidence of its up to-date professional liability insurance; and

(b)on request, submit to the trustee a declaration and evidence of the up to-date of insurance for inclusion in any periodic report that the trustee is required to prepare.

(10)A valuer shall inform the trustee immediately if the valuer becomes aware of any potential conflict or event that would cause the valuer to cease being independent, or cease to satisfy the requirements of this Regulation generally or in respect of a particular or proposed valuation, disposition or acquisition.

(11)Where any valuer appointed under this regulation—

(a)ceases to be independent or qualified for appointment, the valuer shall retire and the trustee shall, in consultation with the REIT manager, within a period of thirty days, appoint a new valuer; or

(b)ceases to be independent in respect of a particular or proposed disposition or acquisition or notifies the trustee that it does not satisfy the requirements of these Regulations, the trustee shall, in consultation with the REIT manager, appoint an alternative valuer to act in respect of that particular transaction and any subsequent valuations required in relation to that particular asset.

112. Obligations of a valuer

A valuer shall—

(a)not hold REIT securities in an investment scheme for which it has been appointed to act as valuer;

(b)comply with the provisions of the Act and these Regulations;

(c)immediately advise the trustee and the REIT manager if a conflict of interest arises or if it ceases to be independent or qualified for appointment generally or in relation to a specific valuation;

(d)ensure that its opinion and valuation are objective and independent of its business or commercial relationships; and

(e)immediately inform the trustee and the REIT manager of any circumstance or factors which come to the knowledge of the valuer which may reasonably affect the accuracy of the last valuation report prepared in respect of any asset.

113. Basis for valuation and conduct of valuation

(1)The trustee shall cause a valuation of the real estate assets of the trust to be conducted and ensure that other assets of the trust are appropriately valued—

(a)prior to acquisition or disposal of any asset;

(b)prior to the issue or offer of any REIT securities except where the issue or offer is made to the promoter or to connected persons;

(c)on an annual basis or shorter period as may be necessary to enable the trustee and or the REIT manager to prepare the reports required to be prepared under the Act or these Regulations or to fulfil its obligations as trustee;

(d)upon the request of the auditor or REIT securities holders; and

(e)at any other time, if the trustee, the REIT manager or the auditor is of the opinion that it is desirable in the interests of the REIT securities holders that a valuation be conducted or that there has been a material change that may result in the current valuation being out-dated.

(2)A valuer shall conduct a full valuation of all the real estate assets—

(a)based on a full physical inspection of all sites and inspection of all buildings, any facilities erected thereon and connected plant and equipment at least once every three years; and

(b)based, in each other year, on a desk top review unless the valuer is of the opinion that a full physical inspection is necessary or is requested by the trustee to conduct a full physical inspection.

(3)The trustee and the REIT manager shall, where the assets of the scheme involve—

(a)land or real estate under development or construction; or

(b)a contract to acquire assets under construction;

ensure that—

(i)a project manager certifier prepares an assessment report; and

(ii)they obtain any structural engineer's report that is required to be obtained,and avail the reports to the valuer prior to the completion of the valuation.

(4)An assessment report made under paragraph (3) by the project manager certifier shall include—

(a)the estimate of the cost to complete the development or construction;

(b)the costs incurred to date in the development or construction;

(c)the progress against the original and any revised schedule, contract or project plan; and

(d)a comparison of the costs incurred against the original and any amended budgets.

(5)A valuer may take into consideration, the assessment or reports submitted to the valuer under paragraph (3) in its valuation and shall disclose the details of the assessment or report and include comments on the impact, if any, the assessment or report has on the valuation.

(6)Unless a specialist valuer is appointed, a REIT manager shall value cash, bank deposits, bonds, other assets of a similar type and listed securities on a daily basis and submit to the trustee at the conclusion of each working day details of such valuations so as to enable the trustee to fulfil its obligations under these Regulations.

(7)Where—

(a)the trustee, at the request of the REIT manager, proposes to issue new REIT securities for subscription; or

(b)where redemption is required or permitted, the trustee proposes to redeem REIT securities; and

(c)the assets were valued more than six months prior to the proposed issue or redemption, then a desk top valuation, not involving a full physical inspection, shall be conducted by the valuer prior to the issue or redemption:

Provided that the REIT manager and the valuer certifies to the trustee that they are not aware of any fact or condition that would have resulted in values of the real estate assets changing materially.

(8)Valuations shall be conducted on the basis and in accordance with the procedures and methodologies set out in the Sixth Schedule as well as the valuation standards published and adopted by the Institution of Surveyors of Kenya and the Valuers Registration Board.

114. Fees and remuneration of a valuer

(1)Subject to paragraph (3) and to compliance with any law relating to valuation fees, a valuer shall be paid a pre-determined annual fee.

(2)Except where required by any law the fees payable under paragraph (1) shall not be contingent upon the valuation of the assets as determined by the valuer.

(3)Where as a consequence of the operation of these Regulations, an additional or alternative valuer is appointed to undertake a specific valuation, a fixed fee for conducting the required valuation shall, subject to any law, be agreed prior to appointment of the valuer and such fee shall not be contingent upon the valuation of the assets as determined by the valuer.

(4)The trustee and the REIT manager shall not charge a separate or additional fee in respect of the carrying out of a valuation.

115. Removal of a valuer

(1)The trustee shall remove a valuer if—

(a)the valuer ceases to be qualified under regulation 111 other than where a valuer has a conflict or is otherwise not qualified only in respect of a particular acquisition or disposition and an alternative valuer has been appointed for the purpose of undertaking such valuation;

(b)the valuer goes into liquidation, becomes bankrupt or a receiver or administrator is appointed over the assets of the valuer;

(c)the trustee, on its own initiative or following a request from the REIT manager, is of the opinion that it is desirable in the interests of the REIT securities holders;

(d)the REIT securities holders pass an ordinary resolution for the removal of the valuer; or

(e)the valuer has contravened any provisions of the scheme documents, the Act or these Regulations.

(2)The REIT securities holders shall not pass a resolution for the removal of the valuer under paragraph (1)(d) unless—

(a)it has issued to the Authority, a notice of at least seven days of the intention to hold the meeting;

(b)the valuer has been given the opportunity to be present at the meeting and to be heard either orally or through written submissions; and

(c)takes into consideration, the recommendations of the trustee and the REIT manager.

116. Retirement of a valuer

(1)A valuer shall retire—

(a)if the valuer ceases to be qualified except where a valuer has a conflict of interest or is otherwise not qualified in respect of a particular acquisition or disposition and an alternative valuer has been appointed for the purpose of undertaking such valuation; or

(b)as provided for in the scheme documents.

(2)The valuer shall, if the valuer retires before the end of a three year term, provide the Authority with the reasons for his retirement.

117. Power of the Authority to require a valuation

(1)The Authority may, if it considers it necessary, appoint a valuer to carry out a valuation of any assets of a scheme.

(2)A valuation carried out under paragraph (1) shall be final and binding.

(3)The trustee, REIT manager, property manager, property certifier and valuer including any former valuer or other party acting for them or appointed in connection with the scheme,shall provide such documents, information and assistance to the Authority and any valuer appointed by the Authority to enable that valuer undertake its role in a professional manner.

(4)Any fees, expenses or costs incurred by the Authority in appointing a valuer under this regulation shall be paid by the trustee out of the assets of the real estate investment trust.

Part XXII – CONNECTED PARTY TRANSACTIONS

118. Connected party transactions

(1)For the purposes of this Part, a "connected party transaction" means a transaction entered into or proposed to be entered into between the trustee or the REIT manager on behalf of the real estate investment trust and a connected person.

(2)If the REIT manager manages more than one scheme and a transaction or proposed transaction involves two or more schemes managed by the REIT manager, then such transactions shall be deemed to be connected party transactions for each of the schemes.

(3)A transaction carried out on behalf of the trust by the trustee, the REIT manager or any party appointed by the trustee or the REIT Manager shall be—

(a)carried out at arm's length;

(b)consistent with the stated objectives and strategy of the scheme;

(c)in the best interests of the REIT securities holders; and

(d)properly disclosed to the REIT securities holders.

(4)Where the transaction carried out under paragraph (3) involves real estate, the real estate shall be valued by a valuer in accordance with the requirements of the Act and these Regulations.

(5)Where any monies are deposited with or borrowed from any connected party being a party authorized to accept deposits and to make loans, then the interest to be paid on the deposit, shall not be less than that currently applying to deposits of a similar amount and on similar terms and the rate of interest charged on borrowings shall be not greater than that applying to a transaction of a similar amount and on similar terms.

(6)All connected party transactions shall be conducted on terms no less favourable than standard commercial terms and shall be subject to the prior approval of the trustee and where required by the Act or these Regulations by the REIT securities holders.

(7)Where goods or services, other than those for which a fee is charged by the trustee under regulation 90 or by the REIT manager under regulation 91, are to be contracted with a connected party then, unless the goods and services are to be provided pursuant to a transparent open bidding process, if the proposed cost of the goods and services when aggregated with all other transactions conducted with connected persons relating to the provision of goods and services in the immediately preceding twelve months exceeds or would exceed fifteen percent of the amount spent on connected party provided goods and services, then such a contract shall not be entered into or approved by the trustee unless it has first been approved by—

(a)an ordinary resolution passed by the REIT securities holders at a duly convened meeting, at which

(b)no person connected with the person with whom it is proposed to enter into the contract shall be entitled to vote.

(8)Details of all connected party transactions and the value of such transactions on an aggregated basis shall be disclosed in the next published semi-annual or annual report of the real estate investment trust.

Part XXIII – DOCUMENTS TO BE AVAILABLE FOR INSPECTION BY REIT SECURITIES HOLDERS

119. Documents to be availed for inspection

The Trustee and the REIT Manager shall make available, at their principal place of business, the following documents for inspection by REIT securities holders, any prospective investor, free charge during the ordinary business hours, of the trustee and the REIT manager—

(a)the trust deed and any supplemental deeds of the real estate investment trust;

(b)the first prospectus or offering memorandum issued and any supplemental, replacement or subsequent prospectus or offering memorandum, including a conversion prospectus or conversion offering memorandum;

(c)the latest annual and semi-annual reports;

(d)every material contract or document referred to in any prospectus or offering memorandum;

(e)all reports, letters or other documents, valuations and statements by any expert or where any part of such is extracted or referred to in any prospectus or offering memorandum the complete version of such document and the consent given by such experts for inclusion in the prospectus or offering memorandum;

(f)copies of any valuation reports undertaken in the previous three years together with assessments or reports by any project manager certifier or structural engineer;

(g)the audited accounts and any semi-annual unaudited accounts for the real estate investment trust for the past three financial years or if established for a period of less than three years, then for the period since establishment;

(h)the audited accounts for the trustee and the REIT Manager for the past three financial years or if established less than three financial years, then for the period since establishment;

(i)copies of minutes of all the meetings of REIT securities holders; and

(j)the register of REIT securities holders.

Part XXIV – ISSUE OF ADDITIONAL REIT SECURITIES

120. Issue of additional REIT securities

(1)Except where otherwise authorized by the Act or these Regulations, all new or additional issues of REIT securities shall be offered to existing holders on a pro rata basis to their existing holdings and shall only be offered or issued to other persons to the extent that they have previously been offered on no less attractive terms to and not been taken up by existing holders.

(2)Subject to the provisions of the Act and these Regulations relating to acquisitions and valuations, this regulation shall not apply to issues—

(a)to a connected person or an independent third party in full or part payment for the acquisition of real estate assets:Provided that the aggregate number of REIT securities issued in the previous twelve months, other than on a pro rata basis, does not exceed twenty percent of the number of REIT securities on issue at the commencement of that period;

(b)which have been approved by an ordinary resolution passed by the REIT securities holders at a duly convened meeting, and at that meeting no person being a connected person with the person to whom it is proposed to issue the REIT securities shall be entitled to vote; or

(c)which are made pursuant to regulation 27 or 29 to fund a cost overrun.

Part XXV – MEETINGS OF REIT SECURITIES HOLDERS

121. Meetings of REIT securities holders

(1)The scheme documents shall provide for the calling of meetings of the REIT securities holders, voting and procedures for the conduct of meetings.

(2)T'he provisions contained in the scheme documents shall—

(a)include the matters set out in the Seventh Schedule;

(b)be read in addition to the rights set out in the Act and in these Regulations to call meetings; and

(c)not conflict with the provisions of the Act or these Regulations.

(3)Where the approval of the REIT securities holders is required, then—

(a)the promoter and any connected person shall not vote at a general meeting on the resolution if the proposed transaction involves the promoter or any connected person;

(b)details of the proposed transaction together with any connection to the promoter shall be disclosed;

(c)a full copy of the valuation report shall be provided to all REIT securities holders at the time when the notice of the meeting is issued; and

(d)the Authority shall receive prior notification of the intended proposal to seek EIT securities holders approval prior to the circulation of any notice.

Part XXVI – ISLAMIC REITS

122. Islamic REITS

(1)Where it is proposed that REIT securities be issued in respect of a real estate investment trust scheme which is to be offered or in any way represented as an Islamic REIT or Islamic securities, then in addition to complying with the provisions of the Act and these Regulations the trustee shall—

(a)prior to any offer or issue being made, appoint a Shariah adviser to assess the compliance status of the REIT scheme and in the event of the resignation, retirement or termination of such adviser, the trustee shall ensure that a substitute Shariah adviser is appointed as soon as is practicable;

(b)in appointing a Shariah adviser, comply with the requirements on any law in Kenya and the views of any Kenyan regulatory authority and may take account of the views of any party whose views are influential or accepted as determining or ruling on Shariah principles applicable in Kenya; and

(c)together with the REIT Manager, ensure that the Shariah adviser establishes and updates from time to time Shariah guidelines for the assistance of the trustee and the REIT manager and conducts Shariah compliant assessments—

(i)of the terms of the scheme documents and of the REIT securities;

(ii)on any real estate asset prior to acquisition or disposition;

(iii)of the tenants and changes in tenancy arrangements to ensure that only permissible activities and businesses are conducted by the tenants or if some non-permissible activities are conducted, then the level of such activities falls below the acceptable maximum and by how much;

(iv)on the method and terms of any borrowing or financing to be entered into in respect of the trust;

(v)of any insurance contracts and the parties with whom such contracts or arrangements are entered into; and

(vi)of the proposed method and terms of investment in any eligible assets.

(2)The Shariah adviser shall, in addition to any other periodical report required to be prepared under regulation 101 and matters to be included in semi-annual and annual reports, prepare and submit to the trustee a report confirming compliance with Shariah principles.

(3)In the case of an Islamic REIT the trustee shall request a report from the Shariah adviser confirming that any acquisition or disposal shall not affect the compliance of the Islamic REIT with Shariah principles.

(4)The trustee and REIT manager shall consult the Shariah adviser whenever required and put in place a reporting mechanism and procedures to ensure that the continuing disclosure obligations under regulation 42 are complied with as regards the compliance of an Islamic REIT and Islamic REIT securities with Shariah principles

(5)For the purpose of these Regulations a Shariah adviser shall be deemed to be an expert who by virtue of his occupation, religious standing, expertise or reputation combined with his understanding of the Kenyan financial sector, capital markets and Shariah requirements as regards finance is accepted by the Authority from time to time as being competent to provide an authoritative statement on the compliance of a real estate investment trust scheme with Shariah law.

Part XXVII – TAKE-OVER AND MERGERS OF REITS

123. Application of the Capital Markets (Take-Overs and Mergers) Regulations

Where a scheme is an unrestricted listed I-REIT then the provisions of the Capital Markets (Take-Overs and Mergers) Regulations, 2002 shall apply to a scheme as if the I-REIT was a listed public company with such modifications as may be necessary.

Part XXVIII – LICENSING OF TRUSTEE AND REIT MANAGER

124. Application for a licence by a trustee and a REIT Manager

An application for a licence to operate as a REIT manager or as a trustee of a real estate investment trust scheme shall be submitted to the Authority in duplicate in Form 3 set out in the Eighth Schedule.

125. Specific requirements for licensing as a trustee of REIT manager

(1)An applicant under regulation 124 shall submit the application together with—

(a)its certificate of incorporation;

(b)its memorandum and articles of association;

(c)a statement of the unaudited accounts for the period of the accounting year ending not earlier than six months prior to the date of application and the applicant's audited accounts for the preceding two years, or, in the case of entities which, at the time of application, have been in existence for less than six months from the date of their incorporation, submit an opening balance sheet and an auditor's certification of the share capital of the company;

(d)a business plan containing the particulars on—

(i)the management structure;

(ii)the directors, including one or more executive directors, their qualifications, addresses and details of other directorships;

(iii)the shareholding structure, disclosing whether any of the shareholders will have an executive role to oversee the day-to-day operations of the business;

(iv)the evidence of a minimum paid-up share capital of not less than ten million shillings in the case of the REIT managers and not less than one hundred million shillings in the case of the trustees;

(v)the qualifications, experience and expertise of the chief executive;

(vi)the proposed management and qualifications of key personnel demonstrating capacity to undertake the designated role or access to such skills and experience;

(vii)the financial projections for three years for the trustee and the REIT manager in respect of their businesses;

(viii)the particulars of the proposed operating and information technology system to be utilized in connection with the scheme;

(ix)one bank reference, where the applicant is a bank the reference shall be given by another bank independent of the applicant;

(x)two business references;

(xi)the proposed premises suitably located and equipped to provide satisfactory service to REIT securities holders or evidence acceptable to the Authority that such premises will be available;

(xii)the staff capable of providing professional services or evidence acceptable to the Authority that such staff will be available;

(xiii)the independent auditor of or proposed for the trustee or the REIT manager; and

(e)the fees prescribed in the Eighth Schedule.

(2)Every person who is, or is to be, a director, chief executive officer or manager of a REIT manager or a trustee, shall be fit and proper to hold the particular position which he holds or is to hold.

(3)Where the applicant is a bank or an insurance company, it shall obtain and submit to the Authority a no objection letter from its primary regulator.

126. Financial requirements for a trustee and REIT manager

(1)The level of shareholders' funds (paid up share capital and reserves) for REIT managers or a trustee, shall not fall below ten million shillings in the case of the REIT Managers and not less than one hundred million shillings in the case of the trustees at any time during the licence period.

(2)The paid up share capital of the REIT manager or a trustee shall at all times be unimpaired and shall not be advanced to the directors or associates of the REIT manager or the trustee as the case maybe.

(3)A Trustee and a REIT manager shall maintain a liquid capital of five million shillings or eight percent of its total liabilities, whichever is higher.

(4)Unsecured advances, loans and other amounts to directors or associates of a REIT manager or trustee shall be made out of shareholders' funds which are in excess of the prescribed minimum shareholders' funds provided that such loans shall not exceed ten percent of the shareholders' funds at any time.

(5)The ratio of the REIT manager's or trustee's borrowings to the paid-up capital shall not exceed twenty percent, at any time.

(6)Where a trustee is a bank licensed under the Banking Act (Cap. 488) or an insurance company licensed under the Insurance Act (Cap. 487), it shall be considered to be in compliance with these financial requirements as long as it holds a valid licence issued by either the Central Bank of Kenya or the Insurance Regulatory Authority.

127. Records to be maintained by trustee and REIT manager

(1)Every REIT manager or trustee shall, where applicable, maintain and preserve for a period of seven years or such later period as is specified from the date of sale or disposal, in the case of the sale or disposal of the asset and from the date of the termination or maturity of the transaction in the case of a borrowing or financing arrangement or risk management transaction, the following records—

(a)journals, including cash receipts and disbursement records and any other records or original entry, forming the basis of entries in any ledger in respect of the REIT manager or the trustee's business and in respect of the REIT maintain indefinitely;

(b)general and auxiliary ledgers, or other comparable records reflecting assets, liabilities, reserves, capital, income and expense accounts in respect of the REIT manager or the business of the trustee and in respect of the REIT maintain indefinitely;

(c)a record or memorandum of each request, direction or instruction given by the REIT manager or the trustee for the purchase or sale of real estate assets or REIT securities, as the case may be, or any other asset or investment, or any request, direction or instruction received by REIT manager from the trustee or REIT securities holders concerning the purchase, sale, receipt or delivery of a particular real estate asset or REIT securities of other asset or investment, as the case maybe, and of any modification or cancellation or any such order or instruction, and the record shall—

(i)specify the date and terms and conditions of the request, direction, instruction, modification or cancellation;

(ii)identify the person connected with the REIT manager who recommended the transaction to the trustee, as the case maybe;

(iii)all valuation reports requested or obtained which shall be maintained indefinitely;

(d)all cheque books, bank statements, cancelled cheques and cash reconciliations of the REIT manager or the trustee;

(e)all bills, statements or copies thereof, paid or unpaid relating to the business of the REIT manager or trustee;

(f)a record or memorandum of all requests, directions or instructions by the REIT manager or the trustee and of any meeting of REIT securities holders to enter into any borrowing or financing arrangement or risk management arrangement together with details of any comparative quotes obtained in respect of such transactions which shall be maintained indefinitely;

(g)originals of all written communication received from REIT securities holders or trustee, as the case may be, copies of resolutions put to or passed by meetings or REIT securities holders and copies of all written communication sent by the REIT manager or trustee relating to—

(i)any recommendations made or proposed to be made; including to a meeting of the REIT securities holders;

(ii)any receipts, disbursement or delivery of funds, real estate assets, REIT securities or other assets; and

(iii)the placing or execution of any request, direction or instruction to purchase or sell any real estate asset, REIT securities or other asset or investment;

Provided, that if the REIT manager sends any notice, circular or other advertisement offering any report, analysis, publication or other investment advisory services to more than ten persons, the REIT Manager shall not be required to keep a record of the names and addresses of the persons to whom it was sent except that if such notice, circular or advertisement is distributed to persons named on any list, the REIT manager shall retain a copy of such notice, circular or advertisement, a record or memorandum describing the list and the source thereof;

(h)all written agreements or copies thereof entered into by the REIT manager with any trustee or REIT securities holder or otherwise relating to the business of the REIT manager or the operation of the REIT or the conduct of the REIT managers activities in respect of the REIT which should be retained indefinitely;

(i)a copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication recommending the purchase or sale of REIT securities, which the REIT manager circulates or distributes, directly or indirectly, to ten or more persons, and if such notice, circular, advertisement, newspaper article, investment letter, bulletin or other communication does not state the reasons for such recommendation, a memorandum from the REIT manager indicating the reasons thereof;

(j)all advertisements by the REIT manager and all records, worksheets and calculations necessary to form the basis for performance data in an advertisement under paragraph (i);

(k)a record of every transaction in REIT securities in which the REIT manager or trustee or any employee of the REIT manager or trustee acquire any direct or indirect beneficial ownership; specifying the title and amount of the security involved, the date, whether the transaction was a purchase or sale or other acquisition or disposition, the price at which it was effected, and the name of the stockbroker with or through whom the transaction was effected;

(l)a copy of each written statement, the amendment or revision thereof, given or sent to any REIT securities holder or prospective REIT securities holder of such REIT manager and a record of the dates that the same was given or offered to be given; and

(m)any other records as may be determined by the Authority.

(2)The records specified under paragraph (1) shall be subject to inspection from time to time and without notice, by the trustee, where are required to be maintained by the REIT manager, or the Authority.

(3)A REIT manager shall preserve and maintain the records of the REIT securities holders' of REIT securities or funds and if required produce for inspection by the Authority such books, records and ledgers, or other accepted accounting and additional records as may be required by the Authority for a period of seven years.

128. Conduct of REIT manager and trustee

(1)A trustee and REIT manager shall comply with the Act and Regulations and failure to do so may constitute a ground for the revocation by the Authority of a licence to operate as a trustee or REIT manager.

(2)A trustee or REIT manager shall not—

(a)guarantee a REIT securities holder that a specific result will be achieved arising from the advice which will be rendered; or

(b)publish, circulate or distribute any advertisement which does not comply with the Act.

(3)Any information provided by a REIT manager or the trustee to REIT securities holders through reports, newsletters and advertisements shall be factual and accurate.

(4)A REIT manager or trustee shall not lend money to a REIT securities holder unless the REIT manager or the trustee is a financial institution engaged in the business of loaning funds or the loan is made by the trustee on behalf of the D-REIT pursuant to regulation 12.

129. Reporting by REIT manager and trustee

(1)All financial statements prepared by a REIT manager and a trustee as a licensee shall be prepared in accordance with IFRS and every trustee or REIT manager shall, in addition to complying with the reporting obligations in respect of the real estate investment trust, submit to the Authority—

(a)half yearly reports of its own financial performance within thirty days of the end of each half-year; and

(b)audited annual accounts for its operations within three months following the closure of the financial year, in the form as may be prescribed from time to time.

(2)Despite the provisions of paragraph (1), the Authority may require such other form of reporting as it may from time to time specify.

130. Application of the Capital Markets (Licensing Requirements)(General) Regulations, 2002

Regulation 51 to 55B of the Capital Markets (Licensing Requirements) (General) Regulations, 2002, shall apply to a trustee or REIT manager licenced under these Regulations as if the trustee or REIT manager was licenced under the Capital Markets (Licensing Requirements) (General) Regulations, 2002, and with such modifications as may be necessary.

Part XXIX – APPLICATION OF THE CAPITAL MARKETS (CORPORATE GOVERNANCE) (MARKET INTERMEDIARIES) REGULATIONS 2011

131. Application to trustees and REIT managers

The Capital Markets (Corporate Governance) (Market Intermediaries) Regulations shall apply to trustees of REITs and REIT managers as market intermediaries with such modifications as shall be necessary.

Part XXX – APPLICATION OF THE CAPITAL MARKETS (SECURITIES) (PUBLIC OFFERS, LISTING AND DISCLOSURE REGULATIONS, 2002

132. Application of The Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002

(1)The provisions of the Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002 ("the Public Offers Regulations") shall apply to offers, listing and disclosure in relation to REIT securities with such modifications as shall be necessary.

(2)Real estate investment trust schemes shall constitute the real estate investment trust segment of the official list and shall comply with the eligibility and disclosure requirements prescribed by the Authority for that market segment.

(3)Where there is a conflict between the provisions of these Regulations and the Public Offers Regulations, these Regulations shall prevail.

Part XXXI – FEES

133. Fees applicable to applications, approvals, other filings and to transactions

The fees set out in the Ninth Schedule shall, where not provided for in the Act, apply to a real estate investment trust.

Source: Kenya Law · Imported 4 October 2026