Kenya's CMA proposes cutting REIT entry threshold to Sh100,000
Written on
Kenya's Capital Markets Authority wants the minimum REIT subscription cut from Sh5 million to Sh100,000 and the public holding requirement lowered to 15%, in reforms aimed at widening participation and supporting affordable housing.
The Capital Markets Authority (CMA) is proposing to reduce the minimum subscription to a real estate investment trust (REIT) from Sh5 million per investor to Sh100,000 in a bid to spur interest in the investment vehicle. The regulator set the Sh5 million floor in 2013 when REITs were introduced, to ensure that only sophisticated investors who understood the risks took part.
The regulator is also seeking to lower the percentage of a REIT's property that must be held by the public from 25% to 15%, to allow higher participation by corporate investors, and to standardise the fee for converting one type of REIT into another at Sh150,000, down from as much as Sh7.5 million. REITs used to raise money for a new project are known as development REITs (D-REITs), while those that distribute rent from completed property are income REITs (I-REITs).
The CMA said the reduction to Sh100,000 is "a progressive move to democratise real estate investment and deepen the capital markets". It is the second attempt at lowering the threshold: three years ago the regulator recommended Sh10,000, but the proposal was not backed by an amendment to the Act. There is no regulatory minimum for unrestricted income REITs.
The regulator argued that ownership limits force large investors such as pension funds and insurers to sell down stakes they would rather keep. "If a few large investors already own most of the REIT, they are forced to adjust, they may have to sell part of their investment to the public, even if they don't want to; not because they need money but just to meet the rule," the CMA said, adding that this results in dilution of ownership and weaker decision-making.
The CMA is further proposing to give REIT managers powers to guarantee loans taken by their projects or special purpose vehicles, saying lenders are more willing to lend when a guarantee is in place. The changes are among legal amendments the regulator recommends to raise the role of REITs in the government's affordable housing agenda.
Three REITs currently trade on the Nairobi Securities Exchange, two of them dollar-denominated. Two REITs issued this year were oversubscribed, signalling appetite for the asset class: the ALP Investment REIT initial public offer was 115% subscribed while the Trific Green I-REIT recorded 103.3% uptake.