The Kingdom of Bahrain launches its first REIT

Bahrain’s first Real Estate Investment Trust (“REIT”) launched to the public in November 2016.

A REIT is an investment vehicle structured as a Trust, the objective of which is the acquiring, holding, administering, managing and selling of income generating local and foreign real estate assets, either directly or indirectly.

REITs traditionally appeal to investors looking to diversify their portfolios, with the potential to generate a regular and consistent income stream from ongoing tenancy portfolios, although REITs are designed to generate wealth through both capital growth and income return.  REIT structures in Bahrain are regulated by the Central Bank of Bahrain (“CBB”) and must be authorized by the CBB before they can be listed on the Bahrain Bourse. 

REITs are governed by the new Trust Law (Legislative Decree No. 23/2016), which came into force on 12 November 2016, as well as Volume 7 of the CBB Rulebook, and the REIT Listing Rules issued by the Bahrain Bourse. 

The launch makes Bahrain the second GCC state to establish REITs as a regulated investment structure, after the UAE. Since the introduction in 2010 of the REIT in the UAE, the recent financial success announced by the Emirates REIT (whose portfolio is entirely Dubai based) suggests that there is definite scope for Bahrain’s banking sector to develop bespoke products such as REITs, that attract investment on both a regional and global scale.

Eskan Bank established the inaugural Bahraini REIT, and appointed Bahrain Islamic Bank as the official receiving bank for the subscription offering.  The subscription rate was 95.5%, and the Eskan REIT units are intended to be listed on the Bahrain Bourse in early 2017, after which unit holders can commence trading through their appointed brokers.

Existing CBB regulations state that the dividend pay-out ratio of a REIT has to be at least 90% of its net realized income. While each REIT will have its own of features, the investment properties selected are likely to be diversified across regions, lease lengths and tenant types.

The launch has come at a time when US equity REITs have an average yield of 3.7%.  Eskan Bank is aiming for a distribution yield of 6.5%.  

Given the relative novelty of such investment structures, investors and the public look forward to seeing how the inaugural Bahraini REIT performs in the next couple of years.

This article was originally published by LexisNexis. For more information, please contact Unkar on +973 17 133202 or at unkar.chanian@crsblaw.com, or Yara on +973 17 133261 or yara.aldhaen@crsblaw.com.