STANLIB’s Fahari I-REIT registered a 6.5 per cent interim half year return following its successful listing on the Nairobi Securities Exchange (NSE) last year attributed to growth in both capital and rental income during the first six months of its financial year.
“The REIT manager said that the long-term prospects are underpinned by the quality of the assets and are confident of sustainable income going forward,” read a statement.
That is, the I-REIT is not yet exposed to debt. This minimises interest rate risks. The I-REIT has registered headline earnings of 23.19 cents per unit driven by revenue of Sh117.9 million and comprehensive profit of Sh53 million.
STANLIB has substantially completed the acquisition of three assets since its listing in November 2015, which raised Sh3.6 billion against a target of Sh2.6 billion. The three properties are the Greenspan Mall, Bay Holdings and Highway House. Its investment property is now valued at Sh2.4 billion.
However, according to Cytonn Investments,” Listed real estate investment stocks in Kenya have so far delivered a disastrous track record, subscriptions have been low and price performance post issuance has been significantly negative. Yet, real estate remains a very attractive sector driven by demand outstripping supply in the low to mid income segment.”
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“It is time for the industry players in financial services, real estate and regulators to review the initiative and give it new impetus. Failure to rejuvenate the REIT market would be very negative to the market,” said Cytonn weekly report released on Monday.
The high minimum cost required to invest in Real Estate Investment Trusts (REITs) have also been blamed on the low uptake.
The Sh5 million a unit Fusion D-REIT has been extended twice indicating failure to raise required amounts. There is also little clarity on its closure which was scheduled for August 4 The Stanlib Fahari I-REIT on the other hand achieved only 29 per cent subscription, and is now trading at just Sh 16.35, 18.25 per cent below its issuance price of Sh 20, while Home Afrika which went public in 2013 at Sh 12 per share is now trading at Sh 1.25, which is 89.6 per cent below its issuance price.
The Cytonn report states that a vibrant real estate capital market is essential in two key respects: funding is required for the reduction of the housing deficit and the need for real estate-backed investment returns.
To achieve the momentum needed, they propose:
- REITs are a new product and may require initially an industry initiative or a government sponsorship. Rather than each player trying to launch their own REIT, we should find a few strong real estate and investment players to collaborate on a club deal that has broad support with the goal of not just economic viability but also proofing the REIT concept to the market so that there is a success story.
- Get broad institutional support before launching another real estate listing. In markets such as Japan, the main buyers of REIT stocks are financial institutions. We need to educate and bring on board the main institutional investors to commit to supporting the REIT before launching,
- Bringing down the minimum amounts required for investments. The current amounts, for example, the minimum of Kshs. 5 million for the Fusion D-REIT is very high and locks out most investors,
- Broad investor education in simple terms that investors can understand backed by demonstrable examples,
- Providing some level of principal plus minimum return guarantees to the buyers to get them comfortable that issuers are convinced about their REIT,
- Improved corporate governance around issuance. The first REIT offering is already asking for more time for regulatory compliance, and
- REITs to be more selective in the assets they put in the portfolio so that they are compelling and can deliver clearly superior returns.