Beer maker East African Breweries (EABL) has sold its Ruaraka-based headquarters making it the latest in a series of asset sales that have helped lift the company’s bottom line in the past couple of years.
The building has been sold to Tembo Sacco, a 2,400-member savings and credit cooperative society made up of current and former EABL staff for Sh675 million.
The society has invited its members to buy the building which is to be leased back to the brewer, with an estimated annual return of between seven and eight per cent.
Tembo Sacco, in an investment pitch seen by the Business Daily, is floating 142,300 shares at a price of Sh5,000 each — totalling Sh711 million — to finance the transaction.
Lydia Mungai, the society’s chief executive, said she expects the deal to be concluded by April next year.
“Our members approved the building’s purchase during a special general meeting on June 22. The sacco intends to pay EABL a substantial amount of money by November so that they are comfortable with the deal,” said Ms Mungai.
EABL has over the past five years been involved in a wave of asset sales, including selling off depots, go-downs, idle land and property and more recently a glass-making subsidiary.
In 2012 the company sold 32 acres of land on Nairobi’s Thika Highway to London-based private equity fund Actis for an undisclosed amount. The multibillion-shilling Garden City Mall now sits on the land.
Around the same time, the beer maker disposed of a go-down in Nairobi’s Industrial Area to its distributor Bia Tosha for approximately Sh100 million, the same firm with whom the brewer is currently locked in a contractual court dispute.
EABL also sold the former Castle Breweries plant on Thika Highway to Kimani Rugendo, the entrepreneur who owns Kevian Kenya Limited — the company that makes the Afia juice brand — in a deal believed to have been worth Sh600 million.
EABL, which is 50.02 per cent owned by multinational brewer Diageo, has in the past 10 years cut its landholding around its Ruaraka headquarters to 60 acres.
Charles Ireland, the firm’s outgoing managing director, said the company only needs “half of it for future capacity expansion”, indicating that the brewer could still put part of the land up for sale.
Mr Ireland made the revelation during the release of the brewer’s results for the year ended June 2015 when it emerged that the company had sold off another 15 acres and booked a Sh1.8 billion gain on the deal. This transaction lifted the firm’s net profit 40 per cent to Sh9.6 billion.
A few months later, another chunk of undisclosed size was sold and Sh707 million booked in the brewer’s 2015/2016 half-year accounts, underscoring the impact that the property sales continue to have on the firm’s earnings.
EABL has in the recent past also booked in Sh2.2 billion from the sale of Central Glass Industries (CGI) to a South African firm.
The two transactions lifted the brewer’s half-year net profit by over two-thirds to Sh7.7 billion, more than making up for the currency losses it made in its South Sudan business.
Release capital invested in non-core assets
The Business Daily has also established that EABL has over the years sold off several depots it owned across the country, including in Nyeri and Murang’a, to its distributors.
“The property sales are in line with EABL’s strategic initiative that had been identified a few years ago with respect to disposal of non-core assets, over a period of time,” the brewer said in response to queries on the matter.
“This strategy seeks to release capital invested in non-core assets to support necessary investment in core or production assets.”
The brewer is set to release its full-year results later this month.
Tusker Corporate Centre was opened by President Jomo Kenyatta in 1973 as part of the brewer’s 50th year anniversary celebrations.
Kenya’s founding president had laid the building’s foundation stone in 1970, increasing its sentimental value to the brewer.
Tusker Corporate Centre comprises four floors of office space that is strategically located just metres away from the brewery and across the newly constructed warehouse and logistics centre.
EABL will continue occupying the building as Tembo Sacco’s tenant, an arrangement that will free it from the hassle of managing the asset.
The leaseback agreement will put EABL on an equal footing with corporate giants such as Safaricom, KCB and Equity whose head offices are located in rented premises.
“We are assured of full occupancy during the term of the lease. The house sits on approximately 2.5 acres of land, affording us an opportunity to put up other developments in future,” the sacco says in the brief.
“(We stand to benefit from) capital gain as the area is fast-growing and from value appreciation.”
As of June last year, the brewer’s freehold property was valued at Sh3.3 billion while the carrying amount of its leasehold buildings portfolio was Sh2.4 billion, according to its annual report.
The firm’s total plant and equipment portfolio stood at Sh35.6 billion, having dropped 4.7 per cent from the previous year’s Sh37.3 billion.
Tembo Sacco has been in existence since 1972.
The sacco’s financials for the year to December indicate that its property and equipment portfolio stood at Sh55.7 million while its total assets stand at Sh1.4 billion.
The co-operative has several other investments in the real estate as well as the stock market.
“EABL has been keen on having its employees benefit from its asset sales. When the opportunity arose with the Corporate Centre, the only organised staff group available to them was the Sacco,” said Ms Mungai.