Category Archives: Kenya real estate

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 minimum 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 a 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, an extension of dates or a 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 promoter’s  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 offices (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’s 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

Bad Debts in 2016

According to the Central Bank’s Q1 summary,  non–performing loans at commercial banks have increased this year by 15% to Kshs 171 billion in March 2016..Real estate sector recorded the highest increase over the quarter by 42% – attributable to slow uptake of housing units. apartment blockPersonal/household sector registered increases of 21% as a result of negative macroeconomic drivers such as job losses and delayed salaries. The manufacturing sector had an increase of 15% due to slow down in business leading to failure to generate enough cash flows to meet all financial obligations. Transport and communication, agriculture and mining and quarrying economic sectors registered decreases in non-perfoming loans between December 2015 and March 2016. 

Non-performing loans are still only about 6%, but the report also excluded Charterhouse, Chase and Imperial banks.

23 Things about the 23rd Home Expo (A Review)

For the second time in my life, I got time to go to the 23rd Home expo. I didn’t think it would be much fun being alone but the 4 hours I spent there definitely says a lot.

  1. Entry to the Expo: There were 2 options – to buy a ticket (200/-) or buy a ‘Homes Kenya’ magazine that came with a free copy and bag (350/-) I chose the latter. My mentor says that magazine has everything!
  2. Condos or Condominium if you prefer: I only used to hear about Condos in movies. They are now available in present day Kenya and this particular one cost a whooping 80M. Before going to a home expo, have a budget in mind. It will help you narrow down to what you are looking for.
  3. SACCOs: There was this lady who tried to convince me that there’s wasn’t a cooperative society but told her that is what exactly SACCO stands for. The investment information she shared, though, was good for making future comparisons
  4. Goals: You may have noticed this as a repeated comment on social media. Basically it says I aspire to what you are doing. My goal for going to the expo was to identify a dream house and thereafter pray towards it. Whilst there I got another reason to go for expos, business ideas!
  5. Friends: But the principal reason that saw me get into a matatu and head for KICC was because one of my besties has been looking for a house and keeps dragging me along for her trips. I wasn’t excited about the whole affair but the student has now overtaken the teacher
  6. Technology: And when I thought a presentation via an iPad was ‘it’, I walked into a hall where a number of exhibitors had ultra-high definition displays (UHDTVs) and you can be sure it helped move a dream into actual reality
  7. Everything: and I mean everything to establish a thriving real estate business was here. Generators, solar panels, roofing material, steel beams, sliding doors, kitchen tiles and even simiti was available
  8. Furniture: There was a stand with the most beautiful of mahogany pieces and it felt good to sit on them
  9. Kenya Yetu: Exhibitors came from all over the country were here. Western Kenya, Central Kenya and those from the Coast were well represented. What blew my mind though was this gated community in Red Hill accessed by a road 35 feet above it. The thinking to its designing was absolutely breathtaking!
  10. Dubai: Kenya is a very rich country one of the foreign exhibitors explained and therefore no surprise was it to see Emirati investors scouting for fellow investors
  11. Sales people: Extroverted ones, genius ones, clueless ones and those who knew you didn’t have a cent in your pocket but still went all out to make the pitch. One day I will make one of them commission happy. One day…
  12. Architects: Exhibitors who did not have the advantage of high-definition technology, used architectural models to convince their prospective clients. A closer look betrayed those whose final workmanship would be cheap. These things are (very) important
  13. Off Plan: The expo was not just about selling property but ideas and with ideas, one cannot just jump on board, without seeing the property’s location, knowing who the developers are, and investigating their previous portfolio(s). And what exactly does 58 square metres in comparison to 125 square metres mean? A lawyer? Does one have to have a lawyer?
  14. Chamas or Investment Groups if you like:were here and doing big, hairy, audacious stuff. I can tell you for a fact that those chamas have toiled to reach this live. I salute them!
  15. 2.5 bedrooms: Have you heard of this before? Me neither. But basically what it means that the apartment comes with 2 bedrooms and a miniature room that can either be used as a study area or extra bedroom.
  16. Serviced apartments: Still reeling on this concept because mine is to move from my rented flat to an apartment but when you hear the probable rents, it begins to make investment sense. At this point I pause to clarify that flat is what the Americans refer to as apartments and a condominium is a block of apartments or flats. Ça va?
  17. Marketing: In the entire tour, I only found one stand that didn’t have brochures. Those in the print business definitely made a kill but there was this one brochure where I overtly told the dealer that a “serviced plot behind Kitengela prison” caption scared the potential investment out of me
  18. Carpets: Carpets confuse me especially when there is so much variety of colour and texture to look at. The guy manning the stand generously explained to me the types best for different areas of flooring and I will definitely be looking for him should the opportunity present itself in future
  19. Sadolin: These guys saved me from my desperate such for a colour chart and offered theirs for free. They also gave me the exact type of paint that should be used on a bath tub. Such enthusiastic employees!
  20. Eisenkraft: This is a German company that exclusively sells tools for bending wrought iron at exhibitions. It looked easy and doesn’t every business idea look until you start consider the real resources needed
  21. KRA: The government was here not to collect taxes but to offer amnesty to homeowners. In short, no taxes accrue for the years between 1974 and 2013. For 2014 and 2015, taxpayers will be allowed to claim 40% in expenses and only pay 10% in taxes of the remaining 60% of rental income. For 2016, the 10% of the gross income when received must be paid to KRA. Returns (including nil returns) must be filed monthly i.e. by the 20th day of the consecutive month
  22. St. John’s Ambulance: The emergency services people were present but this time selling their very affordable courses for the individual, the babysitter, and the company.
  23. To do list: It would be a shame to go for such an exciting experience to go to waste and I have promised self to visit some upcoming properties.

 Make sure you visit the next expo!

Review by Tesha Mongi (Visit her blog) 

Stanlib Fahari REIT IPO Results

This week,  Stanlib released the results of the Fahari REIT IPO offer that was launched in October.

They had aimed to raise between Kshs 2.6 billion and Kshs, 12.5 billion, but Kenya’s first REIT grossed Kshs 3.6 billion (29% uptake) – after expenses of Kshs 174 million,  and netted Kshs 3.44 billion.

East Africa institutions (QII) applied for and received 105 million units worth Kshs 2.1 billion (58%), foreign investors applied for and got 45 million units worth Kshs 899 million (25%), and East African retail investors applied for and received 30.8 million units worth Kshs 617 million (17%).

The allocation policy in the event of an over-subscription was to be for 55% for QII, retail would get 25%, and foreign investors 20%. But it’s not clear if the Kshs 1.5 billion ($15M investment by the IFC) committed has been factored in, or if it will come later.

The low uptake would be considered disappointing but for a few factors. First REIT’s are a new exotic product at the Nairobi Securities Exchange (who are also planning to roll out derivatives) and REIT returns are not widely understood by investors. Second, this is a time of high interest rates for competing government securities that are still wildly oversubscribed, and third is that investors may still have overhang from the Imperial Bank shut down – which may continue to affect subsequent attempts to raise cash from the public – such as from company rights issues or commercial bank bonds.

Stanlib are expected to use the funds to complete the purchase of a Nairobi mall

EDIT: The IFC ended up investing $6.7 million (Sh684 million) to match the other investors, which is less than half the $15 million (Sh1.53 billion) it was proposing to invest in Stanlib Investment Fahari Income-Reit. (Via Business Daily) 

STANLIB Fahari Income REIT Launched

This week, Stanlib Kenya launched the country’s first real estate investment trust – the Fahari I-REIT.

They are aiming to raise Ksh 12.5 billion from 625,000 individual. The investors will gain from eligible real estate investments owned by Stanlib Fahari I-Reit – who will invest in properties that have commercial leases and have a portfolio mix of 75% in property and 25% in cash. I-Reit’s are required to distribute a minimum  80% profit after tax excluding fair value gains.

Quick Notes

  • Minimum is 1,000 units at Kshs 20 each so Kshs 20,000
  • Opens 22 October, Closes 12 November, 2015
  • Allotment to be done on 16 November: Plan is for 343,750 units (55%) to qualified institutional investors, East Africa retail and foreign retail 156,250 units (25%) and foreign institutions (20%)
  • It is close ended and will trade on the exchange (NSE)
  • Besides Stanlib Kenya, others authorized Reit managers include Centum Asset Managers, UAP Investment, CIC Asset Management, Fusion Investment Management and ICEA Lion Asset Management. REIT Trustees are Housing Finance Company, Co–operative Bank and Kenya Commercial Bank.
  • Also, the government recently exempted property transferred into a Reit from paying stamp duty till after 2022.
  • Stanlib announced they will buy a Nairobi mall with the cash.