Real estate

investment trusts

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PrefaceThis brochure provides a brief introduction to the creation and conversion mechanisms of Real Estate Investment Trusts “REITs” in the Kingdom of Bahrain (“Bahrain”), offering an overview of the structure of REITs and the various regulatory requirements in Bahrain. In addition, it sets out key highlights of the real estate industry in Bahrain and the potential benefits and challenges, which should be considered by potential REIT investors.

What are REITsIn 1960 REITs were created in the USA to offer investors the opportunity to invest in large-scale, diversified portfolios of income-generating real estate. Today, REITs have become a desirable investment tool for developers, pension funds, individuals, investment banks and corporations.

REITs raise capital through a public or private placement including operator seed capital.

REITs are set up by a Trust Instrument in order to directly or indirectly, acquire, hold, administrate, manage and sell off local and foreign real estate properties.

Real estate investment trusts (REITs)

By acquiring equities of funds and companies operating as REITs, investors can benefit from the characteristics of real estate investment including a strong cash yield with a diversified consistent income stream, long term capital preservation and appreciation and protection from inflation. In addition, REITs could have tax advantages, and this should be considered as the countries of GCC prepare to introduce taxes.

Real estate developers are considering REITs as an opportunity to access additional source of capital, which will help expand the real estate sector within the economy. REITs can also enhance the performance of the Capital Markets sector, the creation of jobs and uplift the real estate profession within the Labor Market.

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REITs in the Kingdom of BahrainRecently, the laws and regulations relating to the Bahrain real estate market underwent extensive reforms. . These reforms have had a significant impact on many sectors and gave investors in the real estate market a strong investment base protected by the new laws and regulations.

Further, in 2015, Bahrain implemented three new significant laws and regulations related to the rents and leases of properties, real estate development and the listing rules of REITs. These new laws and regulations were mainly enacted to protect real estate investors, landlords, tenants, buyers and developers.

In Bahrain, REITs are established under the Financial Trust Law under the purview of the Central Bank of Bahrain “CBB”. REITs are also governed by the REITs Listing Rules of Bahrain Bourse “BHB”.

With reference to the CBB Rule Book –Volume 7; REITs in Bahrain are classified as Collective Investment Undertakings “CIU” with capital raised from the public or through private placement in a form of units or shares. REITs can take one of two forms; Bahrain Domiciled Expert CIU “BDE” or Bahrain Domiciled Exempt CIU “BDX”.

The BDE requires the authorisation of the CBB and can only be offered to Expert Investors. The minimum capital requirements are to the equivalent of U$ 10,000.

The BDX requires initial registration with the CBB and can only be offered to Accredited Investors and requires a minimum initial investment of an equivalent of US$ 100,000. BDX is not subject to authorisation or ongoing supervisory requirement from any regulatory authority.

Authorisation & registration of REITs in BahrainREITs shall be authorised and registered in accordance with the CBB requirements set out in the ARR module of the CBB rule book volume 7.

The application, information, prospectus, subscription list and documents which are requested by the CBB and BHB must be completed by the Trustee before launching the REIT and the listed units shall be in dematerialised form and freely transferable.

Bahrain REITs investment rulesThe CBB Rulebook stipulates an operating framework requiring REITs to invest primarily in income generating properties.

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The minimum investment by a REIT shall consist of two properties with a combined minimum value equivalent to US$ 20 million and representing least 80% of the Net Asset Value “NAV”. The following rules also apply to REITs:

Property held for development shall not exceed more than 20% of the NAV of the REIT. In addition, investing in other REITs shall not exceed 20% of its NAV.

Other assets of REITs must be in the form of cash or cash equivalent.

REITs can borrow only for investment purposes. The leverage shall not exceed 60% of the NAV.

REITs shall distribute annual dividends of not less than 90% of its audited net realized income.

Valuation of REIT properties are governed by CBB rules that include independence requirements and are in line with the International Valuation Standards Committee guidelines.

Your business is our priority

Keypoint provides a full range of Trust Administration services:

Advising and liaising with professional advisors and regulatory authorities in Bahrain,

Setting up and administering Trust instruments,

Recommending the most practical and efficient structure in order to achieve the REITs objectives.

Keypoint is licensed and regulated by the CBB to provide fund administration and trust services.

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Our people

The key source of Keypoint’s strength is our people. Our team is committed to quality client service, providing timely and accurate responses and solutions to any given scenario.

Our consultants, around 55+, are qualified and experienced in their relevant fields and hold Masters or Bachelor degrees in Law, Finance, IT, Management or Business Administration, and professionals who are members of the Institute of Chartered Accountants, Management Accountants, Internal Auditors, Chartered Financial Analysts, Certified Information Systems Auditors, Chartered Institute of Personal Development and other IT Certifications including CISCO, PMP, ISO 22301/BS 25999.

Contact usIf you have any enquiries about our REITs services please contact us and we will be pleased to discuss your business needs.

Nandakumar NarasimhanDirectornandakumar.narasimhan@keypoint.meTel +973 1720 6860

Rami Al JalladExecutive Managerrami.aljallad@keypoint.meTel +973 1720 6837

Your success is our business

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