Tag Archives: REIT

The Fusion Real Estate REIT (FRED)

You can now invest in Kenya’s second REIT (Prospectus – PDF), that closes on Friday this week. The Fusion Development Real Estate Investment Trust (a.k.a. FRED) aims to raise Kshs 2.3 billion ($23 million) through the sale of 100 million units at Kshs 23 each.

FRED comes after Stanlib’s Fahari I-REIT that launched last year. While Fahari was an I-REIT, this one is a development REIT (D-REIT). Stanlib, who aimed to raise Kshs 12.5 billion, ended up with Kshs 3.6 billion, a 29% uptake, which included an investment from the IFC. The minim investment was affordable (Kshs 20,000) but Kenyans are slow to take to exotic products in this case REIT’s as opposed to the usual bonds or shares, and that one came amid a spate of bank collapses.

FRED plans to use the Kshs 2.2 billion (i.e Raise Kshs  2.3 billion minus issuance costs of Kshs 100M) for Greenwood Park, a mixed development comprising shopping mall, office block and residential apartments that is currently under construction in Meru.

The REIT manager is Fusion Capital, and the REIT Trustee is Co-Operative Bank of Kenya (Coop). Fusion Capital, TT Africa Real Estate and Binder Limited are the vendors, and Coop will purchase on behalf of the REIT. The  construction has started at a 2.5 hectares (6 acre) plot. The  value of land (Kshs 330M), contractor work done (Kshs 547M), and other work In progress (Kshs 186M) plus other items add up to Kshs 1.15 billion. They have certificates payable of Kshs 239M and a net asset value of Kshs 892M of the development.

 Other Features

  • The units will be listed on the restricted market segment of the Nairobi Securities Exchange.
  • Minimum subscription is 50% (Kshs 1.15 billion – and the promoters will make a decision on allocation of units, extension of dates or withdrawal, if the minimum is not reached).
  • Minimum investment is a subscription for 218,000 units worth ~Kshs 5 million (so this means they will get about 450 investors at most for this which will be a closed fund)
  • The offer runs from 23 June to 15 July
  • Other partners include Fusion Investment Management (REIT manager), NIC Capital (lead transaction advisor) Mboya Wangong’u & Waiyaki, (legal advisors), Deloitte Consulting (reporting accountant) Ngotho Consultants (property valuer) Burbidge Capital (SPV valuer) Citiscape Estate Agents (property manager)
  • Expenses include lead transaction advisor (Kshs 30M), legal costs (6M), Reporting Accountants (0.7M), selling commission (35M), CMA fees (7.5M), NSE fees (1.25M) PR costs (2M), Advertising costs (8M) – total Kshs  99M.

Fusion Capital is undertaken the projects including Flamingo Towers (Upper Hill – Kshs 1.3B), Upward Scale (offices on Ngong Rd – Kshs 1.5B), Hand in Hand (residential in Athi River – 600M), Starehe Homes (90 3 BR apartments in Mtwapa – Kshs 1.2 billion ), and Kigali Heights (office next to Kigali convention centre – Kshs 3.7B)

The retail, entertainment and lifestyle facility, measuring 25,000 square metres when complete  that would be the centre of attraction in Meru County for many years to come. The promoters  anticipate 100% occupancy for the residential, offices and retail spaces. They have chosen to sell the residential parts (2 bedroom apartments for Kshs 10 M & Kshs 10.3M and 3 bedroom ones for Kshs 13 M) and that combined with office (Kshs 12,000 psf) and retail (Kshs 21,592 psf) space rents will lead to a payback in 3 years.

Meru Nanyuki road

Other

It’s been reported that Nakumatt will be the anchor tenant at Greenwood mall and that 45% of the mall has been booked.

Also investment firm Cytonn had a report which noted that:

  • We analyze(d) returns on the Fusion D-REIT offering, and recommend our investors to participate in the offering.
  • As compared to other investment opportunities such as a 5-year Kenya T-bond currently yielding 13.2%, FRED offers equity IRR of 20.5%,. 
  • However, the key risk is the ability of the development to be executed within the defined parameters.
  • Mombasa, Kisumu and Nakuru are the leading frontiers in mall space supply, after Nairobi… The Mt Kenya region which comprises of Meru, Embu, Nanyuki and Nyeri has the largest development pipeline, and Meru and Nanyuki have been identified as investment frontiers due to population growth and tourism activity.

EDIT: On  July 17, the deadline was extended to July 26.

EDIT 2 : On  July 27, the deadline was extended, for a second time, to August 4.

EDIT 3 : On  August 5, the deadline was extended, for a third time, to August 24.

EDIT 4 : On  August 26, the results were published in the newspapers which showed that Fusion had achieved a 38% subscription rate, raising Kshs 873 million from 4 investors (3 of whom were shareholders in the asset being acquired). The offer did not meet the regulator criteria of 7 investors or the 50% target for the promoter. Nevertheless the promoters will seek alternative funding to complete the project construction on time and consult the CMA and NSE about reopening the REIT  at a future date. 

$1= ~Kshs 100

Countdown to REIT’s in Kenya

This week CFCLIfe and Stanlib managers held a media briefing on Real Estate Investment Trusts (REIT’s) in Kenya and their possible impact on the local property scene.  REIT’s are common around the world, South Africa, Ghana, Nigeria have had legislation for them, and finally, there’s a Kenya law on REIT’s in place (July 2013) after many years of formulation and review.

 Stanlib Kenya  plan to launch REIT’s in Kenya in September 2014 – and the law allows for two kinds – Income REIT’s (I-REIT) and Development REIT’s (D-REIT). Some unique features about REIT’s (which will cost between Kshs 100 – 300 million to set up with a minimum of 7 promoters) include they must distribute about 80% of profits to investors, and investors can sign on to I-REIT’s for as low as Kshs 5,000.

The speakers noted that many large landlords in Kenya are quite comfortable earning incomes of less than 5% on their assets, when they could be earning quite a bit more (10% – 20%) by signing up with REIT’s – which are tax exempt and offer diversification (can invest in strong properties prisons, hospitals, malls) with more liquidity for all investors who participate in the REIT. While there’s saturation as the high end of the property market, and expensive land prices are still climbing,  there are still great opportunities at the mid- and lower- residential and commercial income segments. Also the Kenya UN classification was upgraded which means that from a previous 45, over 180 countries will now have officials accredited to the UN living in Nairobi. 

Also licensed as REIT managers alongside Stanlib in April, were CIC Assets and Fusion Investments.

Answers to ColdTusker’s questions

  • The minimum amount of initial assets for an D-Reit is 100M and for a I-Reit is Kshs 300M
  • D-REIT in the act is defined as “a development and construction real estate investment trust” is for sophisticated investors e.g for property developers to put up properties. They have shorter lifespans – and YES they can convert to I-Reit’s which are for income from established properties. D-Reit’s can borrow up to 50% of assets, and i-Reit’s only 35%, also i-Reit’s must have 75% of portfolio in properties, and D-Reits have to have sunk 30% of their funds into property within year 1 
  • Centum 2 Rivers was mentioned as the planned largest mall in Eastern Africa – with Carrefour as an anchor along with other foreign shops as main tenants (not the usual local supermarket and shops in the stores)..interesting as Carrefour seems to be withdrawing from emerging markets –  http://qz.com/231405/carrefours-india-exit-has-little-to-do-with-the-governments-reservations-on-retail/