ADVOKS GLOBAL · KENYA
The Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations
76. Eligible investments for a D-REIT
Edition: 2023-10-06 · In force
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;(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 D-REIT where—(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—(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.