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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


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


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


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


*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


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.


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.


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


3


estate intel

1 Towry Close,

Off Idejo Street,

Victoria Island

Lagos, Nigeria

[email protected]

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

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