QA with Anton Borkum on Reits

The chief executive of Stanlib Fahari Income Real Estate Investment Trust, Anton Borkum, was in Kampala to interest government institutions and the private sector in I-Reit. He spoke to Dorothy Nakaweesi on this model of real estate investment vehicles.


What is an I-Reit?

An Income Real Estate Investment Trust (I-Reit) is a collective investment vehicle which exists to acquire and manage real estates to the benefit of its unit holders.

I-Reit invests in property, say a shopping centre, so the money paid by the tenants to the landlord of the shopping centre, now goes to I-Reit.

We manage the property and ensure that maximum income is generated I-Reit pays its expenses then pays up the remainder of the money to its investors in a tax-efficient manner, in line with both local legislation and its distribution policy. Kenya’s Capital Markets Authority requires that a minimum of 80 per cent of distributable income must be paid to unit holders.

What are the aantages of investing in an I-Reit, compared with other securities?

This is the first REIT to be listed in East Africa. It enables the investor to gain the benefit of diversification into a different type of vehicle based on securities exchanges as well as benefit of diversification by investing in different types of asset classes.

Property has performed extremely well. We believe that listed real estate when added to a balanced portfolio has an effect of enhancing the returns of those portfolios.

How can Ugandans invest in the trust, especially those who are already active on the Nairobi Securities Exchange, through cross-listed shares?

For starters, Ugandan investors have to have a CDS account or apply for one through a stockbroker. Ugandans need to have shares listed on the NSE ,which means one has to follow the rules of the NSE.

We have talked to several institutions in both Uganda and Rwanda who have showed interest in investing. Both fall under the category of local investors, which means they benefit from the preferential benefits allocation policy for East African investors.

When we talk about special benefits, we have a 55 per cent share allocations set aside for East African institutional investors, while 25 per cent has been reserved for East African retail investors.

What mix of investors are you looking at — retail vs institutional Kenyan vs rest of EAC EAC vs global?

We are hoping to allocate 80 per cent of ownership to East Africans and of this ownership 55 per cent will be institutional and 25 per cent will be retail and the balance of 20 per cent has been set aside for foreign investors. We anticipate this will be taken on by foreign institutions.

Why are East Africans getting the biggest allocation?

We believe that East Africa’s growth story is compelling the economy in Kenya is strong, underpinned by strong fundamentals. Given its strategic location both in the region and Africa in general, the underlying demand for real estate in Kenya is strong and expected to grow further.

Kenya was the first East African country to develop and finalise the REIT legislation and it’s the reason we invested there first. In Uganda, we will be engaging with regulators probably next year.  

How would you gauge the appetite for the I-Reit so far in Uganda?

My mission in Uganda was to meet with government and quasi government, as well as institutional pension funds. And those that we have spoken to seem to be interested. We have asked for clarity on cross border issues tax and we will be looking into that and aising. They have also asked for a brief on the legislation in other regional member countries.

What is your overview of the real estate industry in East Africa?

We believe it’s very strong we believe there is significant demand from institutions and retail investors for a product like I-Reit. What I-Reit does is to invest in high quality professionally managed real estate one only has to invest Ksh20,000 ($192) per unit.

How is the regulatory environment for the product in Kenya? How does this compare with the rest of Africa?

The legislation, finalised by the Capital Markets Authority is called the Reit Legislations. It is relatively new and to our knowledge, we are the first institution to promote and manage Reit assets.

We believe the legislation is world class comparable with other territories like Australia, Europe, US and South Africa. We have received support from the NSE and the CMA and we hope to deliver to their expectation, creating vibrant Reit real estate sector.

How will investor interests be secured?

The asset manager cannot acquire or dispose of any real estate properties before they have been approved by the I-Reit investment committee. Thereafter, the proposal must go to the Reit trustee who, in this instance, is the Co-operative Bank for approval. A Reit trustee is the owner of all the units. 

The Reit manager and Reit Trustee are responsible to the CMA and NSE for ongoing compliance and observance of listing requirements. This robust regulatory environment must be respected. We believe that it will give trustee investors a clear line of transparency.

The Reit will report twice annually to international reporting standards and these reports will be published at the AGM, and both the interim and dividend will be recommended, declared and paid.

Where else has Reit worked and what was the outcome?

It has worked all over the world. Five years ago, it started in South Africa, which has since seen an influx of foreign investors. Local investors have also benefited from increased levels of transparency and governance.

The South African REIT has performed extremely well to-date and listed property in South Africa has performed better in the 10-months since January 2015.