Category Archives: REIT

Nairobi Real Estate Moment: 2021

  • The Nairobi Expressway construction that will span from the Jomo Kenyatta International Airport to Westlands, has reached downtown Nairobi and is causing disruptions to real estate and traffic .. some changes to retail include..

  • Changes to Malls – many of which are largely idle above the first floor. Quite a bit of foot traffic there is from bank customers visiting their branches which have now been relocated to the third and fourth floors of Nairobi malls.

Other real estate stories.

  • An EFG Hermes report on Nairobi real estate found the demand for affordable houses has a disconnect that has seen prices are softening in Nairobi – at high-end residential (-27% below 2017 peak), and commercial properties (-13% off-peak). Also, the tough Nairobi office market is very visible (vacancy rates of 22% compared to 9% in 2011) with exposure to some financing banks including KCB and Housing Finance.
  • Orbit Group and Grit Group have partnered on a 25-year $53.6 million sale & leaseback transaction for a light industrial (warehouse and manufacturing) property on Mombasa Road, supported with a $25 million loan from the IFC. Orbit Products Africa, controlled by the Sachen Chandaria family, is a leading contract manufacturer for brands in personal care and home care products and its clients include Reckitt Benckiser, Unilever, Colgate and Henkel. They will expand the plant by an additional 14,741 m2 warehouse space and improve it to modern FMCG industry standards to achieve an IFC EDGE green building certification on completion. As part of the deal, $31.5 million will be a “perpetual note”, raised from Ethos Mezzanine Partners GP and BluePeak Private Capital and additional proceeds from this will be invested in the St Helene Private Hospital in Mauritius, an idea that was conceived by Catalyst Principal Partners. Grit Real Estate Income Group is listed in London and Mauritius 
  • A Knight Frank report, the “Africa Logistics Review” finds that Nairobi had the best real estate market between 2018 and 2021 for prime warehousing and logistics.  “Nairobi recorded the highest increase in average prime rents across Africa, from USD 4.70 psm in 2018 to USD 6 psm ” – and developers have grown over 170,000 square meters in the last five years. Kenya has the highest concentration of special economic zones (SEZ) in Africa (61 of the 180 SEZ’s). The country is also making good progress to grade A warehousing and in growing a real estate investment trust (REIT) ecosystem.  Also because of high land values in Nairobi, developers have sought towns/areas beyond traditional industrial hotspots Read more.
  • Speaking of REITs .. Acorn Project (Two) LLP, the Issuer of the Acorn Medium-Term Green Note (MTN) Program, closed the final tranche on 16th July 2021, raising Kshs 2.096 billion against the target of Kshs 1.438 billion representing a subscription rate of 146%.  As part of this transaction, the Acorn green bond was converted into the Acorn Student Accommodation Development REIT (ASA D-REIT). Read more.
  • The Architectural Association Of Kenya reported on development challenges within the Nairobi metropolitan area. A decade after an electronic construction-permitting system covering Nairobi, Mombasa, Kiambu, Machakos, Kisumu, Kajiado and Kilifi was deployed with the support of the World Bank Group, it is plagued by frequent disruptions and system downtime. In Nairobi, the system has not been operational for more than three months of 2021 and in a survey of AAK members, 46.7% of the respondents indicated that they had to wait for over 6 months for their applications to be processed or granted approval.
  • Kenya’s Lands Ministry is doing a digitization of title deeds through a National Land Information System (NLIMS), referred to as ArdhiSasa with a goal to have all land records digitized by the end of 2022.  The Lands Cabinet Secretary indicated that the Ministry has scanned and digitized 30 million documents in Nairobi.
  • A Cytonn Real Estate report on properties in the years 2020 found that “residential units in Thindigua, Syokimau and Rosslyn recorded the highest returns to investors and land asking prices recorded an overall annualized capital appreciation of 2.3%.” According to the report, Gigiri was the best performing office node in FY’2020, followed by Westlands and Karen, In the retail sector, Westlands and Karen were the best performing nodes while in hospitality, Westlands-Parklands was the best performing node. Read more in the report.
  • Cytonn is now doing a restructuring and has applied to wind down two funds – the Cytonn High Yield Solutions LLP and Cytonn Real Estate Project Notes LLP through administration and has invited creditors to submit their debt claims, with proof, to Kereto Marima who is the appointed administrator – by November 29, 2021.
  • Hotels are not doing well with many iconic sites closed or on sale due to Covid-19 and the resultant curfews and travel bans that have affected the flow of tourists into Kenya.
  • Many hotels expect a steady recovery once the curfew is lifted (which happened in October 2021). See a survey of hoteliers by the Central Bank of Kenya.

Some hotels that are gone: Intercontinental and the Nairobi Dusit/ D2 which recovered after the January 2019 terror attacks only to succumb in the Covid-19 aftermath.

Some hotels currently closed: Mt Kenya Safari Club, Norfolk, Radisson Blu.

Some hotels on sale: Outspan, Treetops (should the Queen buy the hotel ahead of her 100th birthday?), Fairview and Country Lodges, Jumuia (Nakuru).  

New unquoted board for company listings at Nairobi

The Nairobi Securities Exchange (NSE) has launched a new push to increase the number of listed companies. Rather than wait for companies to get ready for listing, they had set out to seek and groom companies under the Ibuka program and have now launched an unquoted securities platform (USP) to woo more companies.  

At an event organized by the Bob Collymore Foundation to connect small and medium businesses seeking capital with potential investors, NSE CEO Geoffrey Odundo said there are 498 private equity funds in Africa with 238 are active in Kenya where there was Kshs 2 trillion available to invest in well-run businesses. He said the new NSE programs are designed at improving the transparency, governance, and chances of business survival after a founder hands off, not just raising capital.  

The USP is an information and infrastructure solution to promote the issuing and trading securities by unquoted companies who can list corporate bonds, ordinary or preference shares, REIT’s, private offers, rights issues and secondary listings of any amount. It targets the many companies whose shares trade over-the-counter (OTC), but whose owners are seeking liquidity, clearer valuations and maybe later to raise capital.

Companies can apply by sending a prospectus to the CMA and NSE, one year of audited accounts, board resolution, incorporation documents and a fee of Kshs 5,000. It takes 21 days for a decision to be made if all documents are sent and the cost of listing is 0.03% of the value of the securities.

The NSE’s USP board has two listings, both from Acorn Holdings. As part of the conclusion of its green bond program, Acorn has transferred the student accommodations it is building into an Acorn D-REIT (real estate development trust), and once they are complete, they will be sold to an Acorn I-REIT (income real estate investment trust) that will manage the properties. A few weeks ago, on July 9, the USP board had its first trades as one million shares of Acorn worth Kshs 20 million (Kshs 6M of the D-REIT, and Kshs 14M of the I-REIT) were traded.

KPMG on Kenya Taxes in 2021

KPMG East Africa has a summary of some tax proposals in the Finance Bill that will be used to plug the country’s ambitious Kshs 3.6 trillion 2021/22 budget.

Here are some excerpts

For investors

  • Depositories are to enhance the identity of investors i.e buyers and sellers of securities.
  • Creation of post-retirement medical funds in retirement benefits schemes.
  • Clarifies the definition of an infrastructure bond.
  • A capital markets tribunal shall deal with matters before it within 90 days.
  • Moving from 16% to exempt after July 1, 2021, are the transfer of assets into real estate investment trust (REIT’s) and asset-backed securities.

Competition

  • Opens up reinsurance to players other than Kenya Re to certify reinsurance contracts.
  • Opens the door to private electricity companies; no longer required to offer their supply to the national grid and they are eligible for investment deductions. Also, if government licenses them, they can compete with KPLC.

Prosecutions

  • Tax cases will not stop where there is an ongoing criminal or civil case.
  • Abolishes the amnesty on rental income tax before 2013 (which had since expired).
  • Rewards for informing on tax dodgers; The Kenya Revenue Authority (KRA) can reward up to Kshs 500,000 (up from 100,000) for information and up to 5% or Kshs 5 million of taxes recovered.
  • Taxpayers are to keep records for 7 years and KRA can assess claims of up to 7 years from the date of a taxpayer’s last return.

Digital Taxes and market

  • PIN’s required for digital marketplace transactions.
  • Digital service tax is removed from residents (only applies to non-residents).
  • Non-resident businesses can maintain records in convertible currencies (not necessarily Kenya shillings).

Large investors

  • To stop base erosion and profit shifting, multinationals / ultimate parent companies are required to file a report on their activities (revenue, profit, taxes paid, employees, assets, cash) in Kenya within 12 months of their financial year-end.
  • Ends group VAT registration for groups of companies; each entity will report its own VAT on transactions.
  • To encourage large investments, there is an exemption for import declaration fee (IDF) and railway development levy (RDL) for investments over Kshs 5 billion or with the approval of the Treasury Cabinet Secretary.

Value Added Tax

  • Introduces VAT on bread.
  • Several items move from 16% to exempt, which means the Treasury CS can exempt them on request. These include infants foods, medical ventilators, lab reagents, gas masks, x-ray equipment, anti-malaria kits and doses, and artificial body parts.
  • Also moving from 16% to exempt, are vehicles for oil & mining companies, and equipment for solar & wind generation.

Other

  • A 20% betting tax returns after being briefly for a year.
  • Bank loan fees no longer incur excise duty.
  • Remove a requirement for VAT regulations to be approved ahead by Parliament; instead they will be shared with legislators under the statutory instruments Act.
  • Withholding tax in oil and mining sectors will be 10%
  • Removes the 10 year limit on carrying tax losses
  • Excise tax goes up on motorcycles and is introduced on jewellery and nicotine substitutes.
  • Reintroduces excise duty on locally-manufactured sugar confectionery and white chocolate that was removed in 2019.

Absa Kenya launches Asset Management

Absa Bank Kenya has rolled out an asset management subsidiary following approval from Kenyan regulators to expand its century-old business of offering financial services in the country. 

Following approval by both the Capital Markets Authority (CMA) and the Retirement Benefits Authority (RBA), Absa Asset Management will offer advice and products for customers to invest in listed shares, treasury bonds, corporate bonds, private equity, property, offshore and other investment classes.

Anthony Mwithiga, the CEO of the new Absa Asset Management unit, said they would offer fund and investment management for institutions, such as pension schemes, retail solutions for the mass market, and bespoke or personalized services for high-net-worth individuals.

The retail solution will offer investment opportunities through five different unit trusts being, a money market fund for Kenya shillings or US dollars, a bond one, a balanced fund, and an equities fund that people can subscribe to for as little as Kshs 1,000. All the classes will benefit from the data-driven insights, investment professional advice and risk management of Absa that is guided by three pillars of value growth, income generation and value preservation.

The CEO of the RBA Nzomo Mutuku said that that investment management, now with Kshs 1.4 trillion of assets under management, still has great potential to grow and that the performance of these investments is what drives pension benefits in Kenya, not pension contributions.

He said that being diverse had sustained growth even during Covid-19. While there has been a decline in interest for corporate bonds, private equity has gone up (from 0.07% to 0.12% as a share of portfolios) and good returns had also been got from ETF‘s that are about to get a boost from a new class for fixed income, and REIT‘s from new tax laws. He added that, when the shilling depreciates, offshore investments deliver good performance. Another new class is now infrastructure in which funds can invest 10% of assets and they are waiting to see which Public-private-partnership (PPP) projects come online.

Acorn Green Bond for Student Accommodation in Nairobi

This week saw the approval of the first-ever green bond in Kenya, issued by Acorn Holdings to fund student accommodation projects around Nairobi.

Acorn is one of the largest developers in Kenya, having delivered over 50 projects worth $550 million in the last decade. These include the local headquarters for Coca Cola, Equity Bank and Deloitte, and the UAP Tower, which is currently the tallest occupied building in Nairobi. They plan to raise up to Kshs 5 billion ($50 million) investors through a bond that has a bullet maturity in five years and which pays 12.25% interest. The green bond issue is partially guaranteed by GuarantCo up to a maximum of $30 million.

Acorn has ventured into purpose-built student accommodation (PBSA), under two brands, Qwetu and Qejani. They are developing projects close to universities around Nairobi, which target students at campuses of USIU, University of Nairobi, Daystar, KCA and Riara universities.

This is to address the current situation where the increasing number of students at universities live in sub-standard housing, without amenities, in poor condition or which are considered unsafe. These are mostly in older building not designed for students such as former domestic-staff quarters. Yet students require reliability water & electricity, Wi-Fi, security, furnishings etc. and which ensure security and privacy.

Qejani is a high-rise, mass-market, offering which students can rent for between Kshs 7,500 -12,500 ($125) per month for single, double or quadruple room accommodations, while Qwetu is their premium brand.  The funding will go towards completing student accommodation facilities including Qwetu USIU Road 3 & Road 4, Sirona Phase 1 & 2, Bogani East Road Qwetu, Bogani East Road Qejani, and Nairobi West Qwetu.

The green bond offer, which is restricted to sophisticated investors, opened on 16 August and closes on 27 September 2019. Allotments will be done on 30 September 2019, with the minimum level of subscription set at 40% for it to be deemed a success.

Other aspects of the bond issue:

  • It is restricted to sophisticated (institutional) investors.
  • Opened on 16 August and closes on 27 September 2019. Allotments will be done on 30 September 2019.
  • The minimum level of subscription is set at 40% for it to be deemed a success.
  • Stanbic Kenya is the issuing and paying agent for the green bonds, and they will confirm that funds will not be used for more than 65% of the project costs with Acorn contributing the other 35%. 
  • Helios Partners are investors in Acorn.
  • GuarantCo is sponsored by the governments of the UK, Netherlands, Switzerland, Australia and Sweden and by FMO, the Dutch development bank.
  • Moody’s Investors Service has assigned a provisional B1 to the Acorn bond.
  • The issue will be certified as a green bond given that Acorn’s projects are constructed in accordance with the International Finance Corporation – IFC’s EDGE (“excellence in design for greater efficiencies”) requirements for sustainable buildings and certified by the Green Business Certification Inc. (GBCI) “.. they aim to steer construction in rapidly urbanizing economies onto a more low-carbon path. Certification is based on benefits generated from providing solutions in construction and operation: energy, water, and materials.” 
  • The green bonds program is endorsed by the Central Bank of Kenya, the Capital Market Authority and the National Treasury.

EDIT October 3, 2019.

Edit: Jan 13 2020: Acorn Holdings listed the Kshs 4.3 billion green bond on the Nairobi Securities Exchange.

EDIT Jan 20 2020: President Uhuru Kenyatta rang the bell to mark the cross listing of Kenya’s first green bond on the London Stock Exchange (LSE).

Edit: October 27 2020: Acorn plans to transfer its partnership interest in Acorn Project II to a new Acorn Development REIT (D-REIT) that has been approved by the CMA.

Edit: February 24 2021: Acorn converted its bond intro units trusts as two real estate investment trusts (Reits), a D-REIT and I-REIT on the NSE’s new unquoted securities platform.

Edit: 29 March 2021: Acorn reported the results of their offer. The I-REIT raised Kshs 3.34 billion and the D-REIT raised Kshs 4.24 billion. Each had 22 professional investors and the shares will be traded on the OTC facility of the NSE.

Edit: May 6 2021: Acorn announced that it will make an early repayment of Kshs 777 million of the Kshs 5 billion medium-term note and the amount will be delisted from the fixed-income segment of the Nairobi Securities Exchange.

To be updated.