Home Afrika chairman Lee Karuri (right) with the acting chief executive officer, Mr Njoroge Ng’ang’a (centre), and group chief accountant Simon Gichini during a business update meeting at the Serena Hotel, Nairobi, September 5, 2013. Salaton Njau
What you need to know:
Home Afrika expects to raise Sh2billion in first REIT issue to fund infrastructure construction at its Migaa Project in Kiambu County.
The Migaa project comprises 4,000 homes, hotels, schools, a hospital, offices, an 18-hole golf course and a commercial centre spread on 774 acres.
REITs are meant to give the property developer access to long term funds at cheaper rates as opposed to short term loans from commercial banks that are more expensive.
Home Afrika expects to raise up to Sh2 billion through a real estate investment trust (REIT) to fund infrastructure construction at its Migaa Project in Kiambu County, making it the first company to seek to raise capital from the stock market for a housing development.
The Migaa project, which could become the first beneficiary of the newly introduced REITs regulations, comprises of 4,000 homes, hotels, schools, a hospital, offices, an 18-hole golf course, a commercial centre spread on 774 acres.
“We are looking to raise between Sh1.5 billion and Sh2 billion. We expect that our transaction advisors will deliver the money in the next four months,” said Home Afrika chairman Lee Karuri at an investor briefing on Thursday.
NIC Capital has been appointed the transaction advisor for issuing what could become the Nairobi Securities Exchange (NSE’s) first REIT. Going for a REIT is meant to reduce finance costs incurred by the developer.
The firm’s listing statement indicates that Home Afrika had Sh145 million in commercial bank loans borrowed from Equity Bank (Sh100 million) and I&M Bank (Sh45 million) as at the end of 2012.
In late 2011 and early 2012, average interest rates more than doubled after the central bank rate (CBR) tripled its policy rate to 18 per cent from six per cent in December 2011.
“At 23 and 25 per cent interest rates, then the cost of finance becomes very significant,” said Mbugua Kamau, a director of Home Afrika and the head of the Migaa Project.
The listing statement adds that the weighted average interest rates on the loans was 21.5 per cent.
REITs are meant to give the property developer access to long term funds at cheaper rates as opposed to short term loans from commercial banks that are more expensive.
Banks have begun gradually reducing their base rates in tandem with the reduction of the CBR from the 18 per cent set in December 2011 to the current 8.5 per cent.
The Central Bank of Kenya has the advised real estate sector to seek alternative sources of funding to prevent a banking crisis that would occur if too much lending went to the sector and housing prices dropped sharply.
Analysts expect that the sector will pick speed in the second half of the year as lending increases. “Going forward we anticipate increased level of commercial banks loans and advances to the sector buoyed by increased private sector investments both in commercial and residential housing development, thanks to the booming real estate development,” said an economic outlook report by Old Mutual Securities.
Home Afrika will spend the money collected on the Migaa Project only in line with the newly issued laws on REITs that require funds to be solely used for specific projects. The firm indicated that it has another REITs issue in the offing.
Mr Karuri said that Home Afrika will issue a second REIT in 2014 for low-cost housing, but added that the amount to be raised is to be revealed at the next investor briefing.
Home Afrika’s low-cost housing is targeting to put up units with entry level at the Sh1 million mark.
Home Afrika’s model is to build and sell houses, implying that they will issue a development and construction REIT or a D-REIT.
The Capital Markets Authority rules on REITs require that investors pay at least Sh5 million to participate.
“REIT securities in a D-REIT, if listed, shall only be listed on a market segment of a securities exchange approved by the CMA which limits trading to a restricted minimum parcel size of Sh5 million,” says the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations, 2013.
Home Afrika has said that the REITs will also benefit retail investors.
“REITs will further help individual investors enjoy the benefit of owning an interest in the real estate market and have the benefits of fast and easy liquidation of investments,” said the firm’s listing statement.
