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REAL ESTATE INVESTMENT TRUSTS IN SUB-SAHARAN AFRICA
THE ROLE OF THE CAPITAL MARKET
WHAT IS AREAL ESTATE INVESTMENTTRUST (REIT)?
A REIT, or Real Estate Investment Trust, is an investment vehicle that owns and manages a por�olio of income-genera�ng real estate. REITs are modeled a�er mutual funds, and use the funds of many investors to purchase and manage real estate property and/or mortgages.
REITs provide a way for individual, small and large investors to invest in large scale properties and earn a share of the income produced through real estate ownership – without actually having to go out and buy the real estate.
CHARACTERISTICS OF REITs:A REIT owns and typically operates income-producing real estate or real estate-related assets. The income-producing real estate assets cuts across a broad range of specific real estate property sectors, including:
Ÿ Apartment communities Ÿ Office properties Ÿ Shopping Malls Ÿ Storage centers Ÿ Industrial parks and warehouses Ÿ Lodging facilities, including hotels
and resorts Ÿ Health care facilities e.t.c
REAL ESTATE INVESTMENT TRUSTS IN SUB-SAHARA AFRICA: THE ROLE OF THE CAPITAL MARKET
What distinguishes REITs from other real estate companies is that a REIT must acquire and develop its real estate properties primarily to operate them as part of its own investment portfolio, as opposed to reselling those properties after they have been developed.
BENEFITS OFINVESTING IN REITs
REAL ESTATE INVESTMENT TRUSTS IN SUB-SAHARA AFRICA: THE ROLE OF THE CAPITAL MARKET
REITs are total return investments. They typically provide high dividends plus the poten�al for moderate, long-term capital apprecia�on.
Higher DividendREITs are required to distribute at least 90% of their taxable income to shareholders annually
in form of dividends.
Por�olio Diversifica�onREITs have a low to moderate correla�on with
other sectors of the stock market. Adding REITs to an investment por�olio can be an efficient way for investors to diversify their
investment por�olio to reduce risk and increase long-term returns.
Income Is Secured By Long LeasesREITs like Equity Residen�al (EQR) own physical assets and o�en have long-term lease contracts which leads to a secure income stream over a
longer period.
LiquidityREIT shares are traded on the major stock exchanges. This makes buying and selling very easy. In contrast, buying and selling
property requires a lot of effort, expense, and exper�se.
Infla�on Protec�onREITs are natural hedges against infla�on as
Real estate rents and values tend to increase when prices do.
TransparencyREITS registered with regulators and listed
on exchanges are required to make structured periodic disclosures and have strong corporate governance. This makes
REIT opera�ons more transparent to investors.
Real Estate
The real estate market has been powered by a resilient economy and a rapidly urbanising popula�on which has developed impressively over the past 12 years. Mul�ple investors and developers have been keen on high yielding opportuni�es in the office space and retail sector, where there were chronic supply gaps.
5,900*TOTAL NUMBER OF
HOTEL ROOMS
368,000SQMTOTAL MODERN
RETAIL
515,000SQMTOTAL GRADE
A & B OFFICE -6.03% -9.27%
CONSTRUCTION REAL ESTATE SERVICES
REAL ESTATE INVESTMENT TRUSTS IN SUB-SAHARA AFRICA: THE ROLE OF THE CAPITAL MARKET
THE STATS
Q4:2016 GDP Growth
Commercial Property Size in Nigeria
The Poten�al for Growth
*Exis�ng supply of interna�onally branded hotels in 2015. W Hospitality Group.
VALUE OF AFRICAN REIT MARKET CAP
# OF COUNTRIES WITH REITS*
NUMBER OF REITS IN AFRICA
LARGEST REIT MARKET
$29BN
4
32
African
REIT MarketKey Market Sta�s�cs On African REITs
Ghana
Nigeria
Kenya
South Africa
1
1
3
27
Number of Listed REITs per Country.
31
REAL ESTATE INVESTMENT TRUSTS IN SUB-SAHARA AFRICA: THE ROLE OF THE CAPITAL MARKET
New DevelopmentsNigerian Stock Exchange seeks to foster growth by making new changes in REIT sector:Ÿ REITs reclassifica�on from main board to a separate board to promote transparency, visibility and liquidity.Ÿ Specific rules rela�ng to REITs and Closed End Funds are to be incorporated into the Rulebook of The Exchange.Ÿ REITs and Closed End Funds listed on The Exchange are to submit quarterly financials and audited full year financial statements to The Exchange via the NSE X-
Issuer Portal. Ÿ REITs and Closed End Funds listed on The Exchange are to submit on a weekly basis, key performance metrics (as applicable) to the NSE which will be
accessible via the NSE’s website.
Market Capitaliza�on of Nigerian listed REITs stands
at N40bn.
Accounts for 0.44% of total market.
Two REIT issuances worth over N33bn failed to list between 2012 and 2014.
New N20bn REIT
expected to list on Nigerian Stock Exchange shortly.
N40bn
0.44%
N33bn
N20bn
Nigerian REITsSnapshot
REAL ESTATE INVESTMENT TRUSTS IN SUB-SAHARA AFRICA: THE ROLE OF THE CAPITAL MARKET
*Established as a unit trust scheme.Source: ei Database, Offer Brochures.
Nigerian REITs Transactions Timeline
SunTrust
Offer Date July 2007
February 2008
Skye Bank
Equity REIT
N2bn
N2bn
August 2008*
July 2010
Union Homes
Hybrid REIT
N12bn
N11.3bn
February 2013
August 2013
FSDH
Equity REIT
N30bn
N26.7bn
December 2014
-
FSDH
Equity REIT
N13.39bn
-
December 2016
-
First Ally Asset Mgt
Equity REIT
N20bn
-
March 2012
-
Lotus Capital
Hybrid REIT
N20bn
-
Lis�ng Date
Fund Manager
REIT Type
Offer Size
Current Market Cap
REAL ESTATE INVESTMENT TRUSTS IN SUB-SAHARA AFRICA: THE ROLE OF THE CAPITAL MARKET
Challenges Opportuni�es
Uncertainty regarding the taxable status of REITs despite non-taxa�on being a core REIT feature.
Retail investors and capital market players lack in-depth knowledge of REITs and its benefits.
Inconsistency with property valua�on outcomes and lack of standards in the valua�on industry make appraisals of investment grade real estate assets difficult.
Improved market liquidity as more vehicles with capital for property acquisi�ons will be created.
Provide the larger market access to real estate ownership.
Access to capital to consistently fund development projects.
REAL ESTATE INVESTMENT TRUSTS IN SUB-SAHARA AFRICA: THE ROLE OF THE CAPITAL MARKET
LESSONS LEARNT: STANLIB FAHARI I-REIT (NAIROBI, KENYA)
Lessons Learnt from Issuance and MarketStructured offer in manner that enabled property acquisi�ons and fund con�nuity with a low minimum subscrip�on rate of 21%.
East African market analysts argue that poor subscrip�on rate for Stanlib Fahari I-REIT and failed Fusion Capital D-REIT lis�ng were a result of poor educa�on and minimal understanding of REITs.
Regulators and stakeholders responded by crea�ng a Na�onal REIT Associa�on to educate the market and drive trac�on for more lis�ngs.
Low minimum subscrip�on amounts enabled the mass market receive access to real estate, as REITs were created to. High entry points are inhibi�ve.
Issuance size of KES12.5bn ($122m).
Minimum subscrip�on of KES2.6bn ($26m) set and approved by regulator.
Only N3.66bn ($36m) or 29% of target achieved was raised.
Por�olio includes retail and industrial with semi office elements.
REAL ESTATE INVESTMENT TRUSTS IN SUB-SAHARA AFRICA: THE ROLE OF THE CAPITAL MARKET
Nigeria KenyaGhana
11.00
11.13
9.00
8.38
7.50
2010 2011 2012 20142013 2015 2016
Yie
ld (
%)
Junc�on Mall
Atlan�c House
Two Rivers Mall
Accra Mall
MARKET LIQUIDITY & INVESTMENT TRANSACTIONSLong term and consistent deal flow in the commercial real estate sector is reliant on the availability of a clear exit strategy for investors.
Liquidity in the form of ready and available buyers for prime real estate assets is important for mul�ple private equity funds that are building Africa's skylines and have a predetermined asset holding period.
As the chart below demonstrates, the number of buyers in the market is increasing as a larger number of investors begin to par�cipate in the market.
In 2015, an es�mated $265m worth of transac�ons were concluded in Kenya Nigeria and Ghana, a big improvement to the $65m seen in all three markets during 2012.
Ikeja City Mall
Buffalo Mall
Greenspan Mall
REAL ESTATE INVESTMENT TRUSTS IN SUB-SAHARA AFRICA: THE ROLE OF THE CAPITAL MARKET
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REAL ESTATE INVESTMENT TRUSTS IN SUB-SAHARA AFRICA: THE ROLE OF THE CAPITAL MARKET
estate intel
1 Towry Close,
Off Idejo Street,
Victoria Island
Lagos, Nigeria
The Nigerian Stock Exchange
Stock Exchange House,
2-4 Customs, street, Lagos, Nigeria
Tel: +234 1 4638333-5; +234 700 225 5673
Email: [email protected]
Website: www.nse.com.ng