10 years on, Kenya shows no appetite for REITs


In Africa, Kenya is the third country to rely on Real Estate Investment Trusts (REITs) as a financing instrument after Ghana and Nigeria. Categorized in three types, REITs are used by firms to source funds to build, or acquire real estate assets which they would sell or rent to generate income for the investors.
They include; Income Real Estate Investment Trust (I-REITs) which entails investors pooling funds together to acquire long term income generating real estate including housing, commercial and other real estate, Development Real Estate Investment Trusts (D-REITs) that rely on acquiring real estate with an aim of undertaking development and construction projects and associated activities, and Islamic Real Estate Investment Trusts that undertake Shariah compliant activities.

Since their establishment in Kenya 10 years ago, the investment vehicle has (generally) failed to reach its full potential. Only one REIT, ILAM Fahari I-REIT, is listed, and trading at the Nairobi Securities Exchange (NSE), with two others (Acorn Student Accommodation I-REIT and Acorn Student Accommodation D-REIT) not listed, but allowed by the regulator to trade their shares over the counter through NSE’s Unquoted Securities Platform (USP).

One more REIT (the Local Authorities Pension Trust (LAPTrust), labelled Imara I-REIT, was approved for listing on the NSE main investment market in November 2022 but “remains restricted”, holding all the Imara I-REIT securities with no initial offer to the public. The interesting bit about the LAPTrust REIT is that it will be listed as a close-ended fund, one where shares are traded on the exchange, but no new units are created and no fresh money flows into the investment vehicle, capped at Sh20.0 per unit, with a total of 346.2 million units worth Sh6.9 billion.

Despite REITs being seen as an alternative investment avenue among gold exchange-traded funds (ETF) and derivatives, outside equities and fixed-income securities, they have failed to live up to their potential thanks to lack of awareness and interest from most investors, as well as lengthy licensing and approval processes.

According to CEO of the Nairobi Securities Exchange Geoffrey Odundo, the Ilam- I REIT’s turnovers were not as good especially last year when the price was way below the net asset value. Despite the gloomy performance, he says, REITs still have the potential to grow in the coming years.

“REIT will continue to be a very good space for us to operate on,” Mr Odundo says. “We are constantly looking at the REIT market to see how we can incentivise it more… it’s a market that is building up and I think this year we will see quite a number of REITs coming through.”

The Ilam Fahari-I REIT has been trading since 2015 with an average price of Sh6.50 per share, a 67.5% decline from the inception price of Sh20. At the end of 2022 the REIT closed at Sh6.52, having traded 4.75 million shares with a market cap of Sh1.18 billion. However, in January 2023, the share declined by 7.40% to Sh6.04, trading 74,500 shares and its market capitalisation dipped to Sh1.09 billion.

As for the Acorn D-REIT and I-REIT, they both recorded gains of 19% and 4% respectively, standing at Sh23.80 and Sh20.80 per unit as at the start of October 2022 from their inception price of Sh20 in 2021.
Kenya has fallen behind, taking into consideration that South Africa established REITs after them – South Africa already have over 30 REITs in their market, with four REITs already among the top 40 companies on the Johannesburg Securities Exchange.

While Kenya can take a leaf from the country, more people would show interest only when there’s cooperation between the market players and regulators. Reducing the minimum investment amount could also entice more investors. In 2015 when Fahari I-REIT was unveiled, a minimum subscription of Sh20,000 at 1,000 units and a nominal value of Sh 20.00 each, was required. Experts say the subscription rate is quite high, and not pocket friendly to most investors.

“We have talked to service providers to ensure they provide competitive pricing for the consultancy services and it’s not expensive to do REITs…As more of advisors, trustees and custodians come in we will see issuance or REITs getting more affordable going forward,” says Odundo.

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