Property market attracts $800m from REITs, private equity funds

The region’s property market is to get a boost of over $800 million in capital investment after two real estate investment trusts (Reits) and several private equity firms announced their entry into the market, looking to invest in shopping malls, offices, hotels and industrial properties.

The real estate market has recently slowed due high interest rates across countries, with the cost of financing pushing up the cost of doing business.

Stanlib, which is owned by South Africa’s Liberty Holdings, a Johannesburg Stock Exchange listed firm, has issued its I-Reits public offering of $125 million, targeting both institutional investors and pension funds.

South Africa’s largest listed Reits company, Growthpoint Properties, announced its intention to enter the regional market through a pan-African fund and aims to raise $500 million to invest in the real estate sectors in Uganda, Kenya and Tanzania among other sub-Saharan economies.

Growthpoint Properties said it will invest 80 per cent of the proceeds in income properties (I-Reits), with the remaining 20 per cent going to development properties (D-Reits). The Reits firm has already invested $50 million in the Pan African Fund while the International Finance Corporation (IFC) has committed $40 million. Investec Asset Management is also a partner in the Pan African Fund.

Private equity firms are also keen to enter the region’s growing property market, with Xterra Capital Aisors last week announcing that it would use $274.5 million of its funds in the region’s real estate sector. Xterra’s fund intends to raise $610 million in the form of both debt and equity. The firm plans to use half of the funds on retail properties, with the rest going towards hotels and industrial and office properties.

“We plan to invest 34 per cent in Kenya, seven per cent in Rwanda, four per cent in Uganda and eight per cent in South Africa. We also have plans to invest 28 per cent of the capital in Nigeria and a further 19 per cent in Ghana,” the firm said.

In Kenya, the firm will use property firms Hass Consult and AMS Properties to develop properties worth $100 million through equity financing.

Other private equity firms eyeing the region’s property include Taaleritehdas, a Finnish firm, which plans to invest up to $30 million in Kenya’s property market, through its $64 million Africa-focused fund.

“We opened an office in Nairobi for our African real estate operations. As a new equity fund, we offered our customers the possibility of investing in the emerging real estate market in East Africa, which met very high interest,” Taaleritehdas said in a statement.

The Stanlib I-Reits issue saw the Nairobi Securities Exchange become the fourth African bourse to launch such a fund after the South African, Nigerian and Ghanaian exchanges.

I-Reits is a collective investment vehicle that allows investors to pool capital, invest in a portfolio of selected properties, then gain through capital appreciation and rental income.

Stanlib Fahari I-Reit chief executive Anton Borkum said the IPO is targeting property markets, rental income and capital gains, allowing investors within the region to invest in large-scale commercial, residential and industrial properties, without requiring large sums of money.

“We are keen on giving both retail and institutional investors exposure to a reliable return profile by offering investments that will afford them long-term growth and capital appreciation,” said Mr Borkum.

NSE chief executive Geoffrey Odundo said the Reits will see investors gain from the lucrative real-estate market, where they will also be assured of the highest standards of transparency and governance.

“The launch of the Reits will give pension funds and institutional investors an additional, liquid asset class to invest in and diversify their portfolios,” said Mr Odundo.

Under the CMA regulations, I-Reits can only invest in complete buildings with at least 80 per cent occupancy levels. It is expected that 80 per cent of the earnings based on rental income will be distributed to the unit holders twice a year. The Stanlib I-Reit, though targeting local investors will also see a portion allocated to foreign investors. Its key target market, however, is fund managers and institutional investors keen on the growing real-estate market.

The Kenya Revenue Authority has exempted Stanlib I-Reit investors from taxation. KRA said that it has approved issuance of a tax exemption certificate for the I-Reit.

At its introduction, the CMA said that Reits would be exempt from VAT on all rental income, capital gains tax, corporate tax and stamp duty on purchase, sale or transfer of properties.

Muthoni Kamau, a commercial aocate, said Reits continue to offer a more competitive investment options when compared with stocks.

“The key question in this market is what type of Reits one is investing in. It is exciting that Growthpoint Properties is offering a mix of both. I-Reits have the aantage of a steady flow of income from the rental property while D-Reits have a higher return because the investor avoids the high cost of property acquisition associated with the latter,” said Ms Kamau.

According to property consultancy firm Knight Frank, the region is full of real-estate investment opportunities, which make it attractive to international investors.