Category Archives: REIT

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.

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

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.

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 a 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/