UAP eyes real estate deals with new investment plan
UAP chairman Joe Wanjui says the company plans to diversify its investment portfolio to boost earnings. File
Regional insurer UAP is set to curb its investments at the Nairobi Stock Exchange (NSE) and puts its money in real estate projects in Kenya, Uganda and South Sudan to cash in on the booming property market.
The firm is also seeking to create a private equity division in which it would source for funds from wealthy individuals and institutional investors for long-term investments for between seven and 10 years.
The insurer has relied heavily on the stock market to drive its profits, but it is now changing tack to reduce the influence of bourse cycles on its profitability with its focus on the lucrative property market.
The insurance firm would on Monday break ground on its South Sudan real estate plan that includes residential houses and a 12-storey office block in a joint venture deal with the South Sudan government estimated at Sh1 billion.
It would also develop a 22-storey office block in Nairobi at a cost of Sh2.5 billion and a business park in Kampala worth Sh1.8 billion.
The company says the investments in Nairobi would earn it rental income of Sh600 million annually upon completion in 2013.
Its net profit stood at Sh634 million in 2010 compared to Sh199 million in 2009 on increased investment income.
“We have over-relied on the stock market in the past and we plan to diversify our investment portfolio to ensure less fluctuation in our earnings,” said the company’s chairman Joe Wanjui.
“Besides properties, we intend to diversify further to other forms of investments including private equity.”
Capital for private equity is raised from retail and institutional investors, and could be used to fund new technologies, expand working capital, make acquisitions, or to strengthen a company’s balance sheet.
The firm’s profit like other insurers continue to rely heavily on performance of NSE.
The insurer’s profit rose to a peak of Sh943 million in 2007 helped by the stock market boom that saw the near doubling of most stocks at the bourse.
In 2008 and 2009, its net profit dropped to Sh326 million and Sh199 million respectively due to the bearish run at the NSE because of the global economic melt-down and the post-election turmoil.
“Due to the hard investment markets in 2008 and 2009 and the hard underwriting environment in 2009, we have come to recognise investments management as our second core business that requires better attention and management focus,” added Mr Wanjui.
A number of Kenya’s insurance firms including CIC Insurance, British American Insurance Kenya and Pan African Insurance and investment firms such as Centum are reviewing their business plans to include real estate.
The sharp rise in the price of homes and rental income, driven by the region’s rapid urbanisation, population growth and expansion of the middle-class, is behind the shift to the property market.
CIC Insurance announced it had bought a 200-acre land in Kiambu at Sh560 million targeting the cream of Kenya’s real estate buyers — a market that has also caught the eye of Pan African Insurance through its property investment arm Mae Properties Limited.
Pan Africa Life, which built and sold 20 houses in Runda Estate in 2009, is planning to construct more than 100 high-end units. Property developers attribute the growing presence of institutional money in Kenya’s real estate market to the robust growth that has seen smaller investors reap high returns because of swelling incomes and large numbers of the youth moving to urban centres.
At present, 32.2 per cent of Kenyans or 12.4 million live in urban areas, up from 23.6 per cent or 5.6 million in 1990 — assuring property developers of a steady demand that has seen the prices of apartments in Nairobi’s middle-income areas more than double in five years. This has underlined real estate as an asset class of premium returns relative to equities, bonds and bank deposits.
