Centum has recorded a Sh5.1 billion balance sheet gain on its property investments, the bulk of it reflecting revaluation of the massive Two Rivers Mall development.
The unrealised gain is disclosed in the company’s latest annual report.
The gain reflects the huge returns that Centum is generating from the ongoing projects that the Nairobi Securities Exchange-listed firm has initiated in recent years.
“We have recorded a fair value gain of Sh5.1 billion in our real estate portfolio,” Centum said in the report. “The valuation set out on the independent valuer report was compared with sale transactions at Two Rivers,” Centum said in the report.
It added that the revaluations are based on equity transactions in its real estate subsidiaries “and also reflects the level of development carried out to date.”
The gain was not booked in the company’s profit and loss account but was reflected in the balance sheet. When realised in disposals, the gains are expected to be included in the income statement.
Centum’s real estate ventures include Pearl Marina (Uganda), Vipingo Development Limited (Kilifi), and Nairobi’s Two Rivers whose flagship development is the upcoming mall.
Most of the gains, however, were derived and based on the Two Rivers mall’s transactions that saw Centum cut its holding in the shopping complex significantly while retaining joint control with the new investors.
“The amounts recorded on the income statement are consistent with the values implied by those (Two Rivers Mall) transactions,” says Centum in the report.
Centum last year ceded a 41.67 per cent stake in the mall’s holding company, Two Rivers Development Limited (TRDL), to Chinese construction firm AVIC and state-owned fund Industrial and Commercial Development Corporation (ICDC) for Sh6.9 billion.
The two institutional investors were issued additional shares in TRDL to offset their Sh6.9 billion loans to the company in the debt conversion transaction.
Old Mutual Properties Africa Investment Company also earlier this year acquired a 50 per cent stake in Two Rivers Lifestyle Center Limited (TRLC), which is a subsidiary of TRDL and directly owns the mall.
Old Mutual paid Sh6.4 billion in the transaction that saw Centum’s effective interest in the mall drop to 29.1 per cent. The investment firm said it booked a gain of Sh3.1 billion on the Old Mutual deal alone, adding that the transaction gives the mall an implied valuation of Sh23 billion.
“On the basis of the 50-50 ownership and control structure, TRLC was deemed as disposed by the group, with the group retaining joint control,” the company said in the report.
Prior to this transaction, TRLC was 100 per cent owned by Two Rivers Development Limited in which Centum Investment Company Limited (“Centum”) holds a 58.33 per cent stake.”
The gains recorded so far in the investment properties are expected to grow in the coming years as Centum moves to complete the capital-intensive projects, partly through joint ventures in specific units including hotels and apartments.
Centum will also benefit from its residual interest in the properties, earning rental income and management fees. All the properties are currently under development and are being built in phases.