THE CAPITAL MARKETS AND SECURITIES (COLLECTIVE INVESTMENT SCHEMES REAL ESTATE INVESTMENT TRUSTS) RULES, 2011

THE CAPITAL MARKETS AND SECURITIES (COLLECTIVE INVESTMENT SCHEMES REAL ESTATE INVESTMENT TRUSTS) RULES, 2011 Introduction The rules mentioned above cover the following parts: a. Preamble; b. Management Company; c. Investment in the real estate and trust; d. Breach of investment limit and suspension; e. Operational matters; f. Miscellaneous; and g. Schedules Applicability of the Rules: The Rules are applicable to persons engaged in dealing with marketing, and distribution activities (including issuance of advertisements and promotional materials) or online transactions/activities relating to real estate investment trusts in Tanzania. Preamble: According to regulation 60(2) of the Capital Markets and Securities (Collective Investment Schemes) Regulations, 1997, the CMSA is mandated to establish regulations for collective investment schemes in Tanzania.

The formation of Real Estate Investment Trusts (REIT) and the advancement of their growth are outlined in these Regulations and they set a legal foundation for Tanzania based REIT projects. Management Company: There is a requirement that any management company handling REIT projects must be licenced by the CMSA. Eligibility requirements: The Regulations states the qualifications which are required to be held by a management company in order to be licenced to undertake a REIT project. Some of the requirements are registration and licensing in Tanzania, local ownership and minimum paid up capital. Directors: The board of directors must comprise at least two independent members, representing and safeguarding unit holders' interests. Directors must be of good repute, maintain integrity, act with due skill, and possess necessary qualifications.

A management company must appoint a full-time CEO who must comply with the fit and proper criteria set out in Rules 8(3) and (4). If the CEO becomes disqualified or unfit, the board of directors must immediately remove him/her. The designated person: The management company must also appoint a designated person responsible for the fund, who must possess the necessary experience and expertise in REIT projects. The designated person must be licensed/approved by the CMSA and the relevant regulator in their home jurisdiction, if non-Tanzanian. Property manager and internal control : A property manager must be appointed by the management company to manage the properties of the management company. The management company must maintain an internal audit function to report on the adequacy, effectiveness, and efficiency of management, operations, risk management, and internal controls.

The management company must operate the REIT project and exercise its responsibilities according to the deed and prospectus, these rules, and the code of conduct. Investment in REIT Project : the Trustee and management company are responsible for ensuring the trust's property aligns with its investment objective and policy. They must take reasonable steps to ensure a prudent spread of risk. The management company must ensure all dealings in the trust's property are appropriate and consistent with the trust's objectives and policies.

Acquisitions or disposals : There must be notification to the trustee in writing about any acquisitions or disposals, to ensure adequate proof of title or ownership, and cancel transactions if they believe that the transaction exceeds their powers or is contrary to unit holders' interests. Acquisitions of real estate by the trust must be subject to due diligence, be competitive and be free from encumbrances. All real estate acquired by a fund must be insured for its full replacement value, including loss of rental, with insurance companies approved by the trustee. Disposal of real estate must be sanctioned by the holders by ordinary resolution, except for terminating or winding up the fund.

Limitations: The management company is not permitted to conduct activities such as extending loans or credit facilities, acquiring vacant land, or property development unless the property is held for three years after completion, there is proper cover for construction risks, the development terms are the same as those in arm's length with independent parties, and the prospects upon completion are reasonably expected to be favorable. Related-party transactions are subject to restrictions. A REIT can only invest in real estate, single-purpose companies, real estate-related assets, non-real estate-related assets, cash, deposits, and money market instruments. At least 50% of a trust's total asset value should be invested in real estate and/or single-purpose companies at all times.

Non-real estate-related assets and/or cash, deposits, and money market instruments should not exceed 25% of a fund's total asset value. Suspension upon default by the Authority: Any breach of the law applicable to REIT project can lead to suspension of the licence by the CMSA and if continued default occurs, the licence can be revoked. Operational matters, the methods of offering units in a real estate investment trust must comply with the shareholding spread requirements of the Stock Exchange i.e. the Dar es Salaam Stock Exchange. The CMSA has the discretion to vary these methods in the interests of the securities market and the public.

A real estate investment trust must undertake an offering of units to the general public as part of its listing scheme, with the units offered under the (balloted) public offer portion constituting at least 5% of the approved fund size for a fund with total asset value of up to TZS 500 million or 2% of the approved fund size, or an aggregate of 10 million units, whichever is higher, for a fund with total asset value of above TZS 500 million. Offer Expenses Expenses incurred relating to an offer for sale or restricted offer for sale of units shall be borne by the offeror. An adviser acting as the placement agent or joint placement agent, licensed by the CMSA as a Dealer or Investment Adviser, is required for any placement of units under an initial public offering. Units cannot be placed with persons connected to the placement agent, except in certain circumstances.

Schedules  First Schedule: Valuation Principles  Second Schedule: Code of Conduct  Third Schedule: The Minimum Requirement of The Trust Deed  Fourth Schedule: Requirements for Applications  Fifth Schedule: Statistical and Compliance Return Foreign land ownership and restrictions on REIT: It is not clear if foreigners can invest in REIT projects whilst currently the Land Act and the Village Land Act restricts foreign individuals and entities in which majority owners are non-Tanzanian’s from owning land, except for investment purposes through the Tanzania Investment Centre. Disclaimer The views expressed in this paper are those of the author only and should not be considered as an official interpretation, defamatory or interference of any legislation, laws or policies of any country including Tanzania.

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