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September 23, 2018

CMA backs REITs to cushion against biting borrowing costs

Stanlib regional director James Muratha,Stanlib Fahari I-REIT chief executive Anton Borkum with his NSE counterpart Geoffrey Odundo during the launch of Fahari I-REIT on October 22.
Photo/Enos Teche
Stanlib regional director James Muratha,Stanlib Fahari I-REIT chief executive Anton Borkum with his NSE counterpart Geoffrey Odundo during the launch of Fahari I-REIT on October 22. Photo/Enos Teche

REAL estate developers are being challenged to tap the capital markets for cash at a time when interest rates are rising.

Capital Markets Authority said the Real Estate Investment Trusts [REITs] provides an opportunity for raising funds from the public to put up or buy real property.

The regulations for REITs were effected in 2013, but the first product was launched last week.

Through REITs individuals and institutions indirectly invest in projects through units, the same way they do in bonds and stocks trading on the Nairobi Securities Exchange.

Funds raised through sale of the units are pooled to buy property.

This is done by acquiring land and building a commercial or residential property [development REIT], or acquiring and investing in existing ones [investment REIT].

CMA acting chief executive Paul Muthaura said the regulatory framework for REIT, which comes with tax incentives, provides the cheapest avenue for developers to raise cash.

The authority has so far licensed five REIT managers and three trustees to help in their structuring.

REIT managers are Stanlib, Fusion Investment Management, CIC Asset Management, Centum Asset Managers and UAP Investments.

KCB, Housing Finance and Co-operative Bank have been licensed as trustees.

 

Stanlib has become the first company to roll out an I-REIT.

The Fahari I-REIT put on sale 625 million units priced at Sh20 a piece on Thursday, last week, in an initial public offering targeting as much as Sh12.5 billion.

The IPO closes on November 12.

“Stanlib maintained the highest standards in their approach. So those that seek to follow in their line should have the same high standards of transparency, governance and quality of assets,” Muthaura said in an interview.

This, he said, will allow the CMA to consider and approve applications faster than nearly a year it took to process Stanlib’s.

Fahari I-REIT lead transaction advisor Naval Sood said Sh2.6 billion – the minimum amount it is looking for – from the proceeds will be invested in prime income-generating projects already identified.

Only Greenspan Mall in Nairobi’s Donholm, has been disclosed as a target.

Stanlib said it was keen on prime property including mixed-use developments, shopping malls, warehouses, offices, residences, hotels and resorts.

Muthaura backed D-REITs to particularly enable investors to raise capital for new projects at less cost compared to loans.

“For a long time, developers have had to go to negotiate with banks with very great uncertainty on the offtake when they are raising capital,” he said. “With the introduction of development REITs, we will have a more structured and transparent way where you can collect public funds for matter of property development.”

Muthaura said one company has applied for a D-REIT and the approval process was at an advanced stage.

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