It is two years since the first Real Estate Investment Trust (REIT) product was launched in Kenya. REITs allow investors to earn income from a real estate project just as a shareholder would get dividend in a company. They also have the advantage of trading the ownership on the stock exchange at any time.
Though the number of players has stagnated, a few have joined the fray recently. Still, they fall below the anticipated numbers given the opportunities REITs avail savvy investors.
STANLIB Fahari I-REIT, which runs three development projects since launching in 2015, is perhaps the most visible. Their flagship project is Greenspan Mall in Dohnholm, Nairobi, a mixed tenancy with occupancy given as 58 per cent retail, 12 per cent healthcare, eight per cent banking, restaurants tie at seven per cent with “others”, and an eight per cent vacancy in the end of 2016 report.
With a capital outlay of Sh3.61 billion, it realised a net profit of Sh106 million in the first year of operation. This is a return on investment (ROI) of slightly less than three per cent. At the time of the launch, this column called on the need for REIT players to consider healthcare infrastructure as a priority.
Though their Greenspan project has 12 per cent tenancy under health services, it is still way below the requirement. My take is that there are few areas you would put your money and achieve as high returns as investing in healthcare given the under-investment in the sector and the high demand, especially, for specialised services.
What is the future of REITs in the country and the impact of retail sector woes on malls?
My bone of contention with REITs players is their fixed mindset on shopping centres. While they may have decent returns, ongoing retail sector woes in the top mass supermarkets that form the heartbeat of such investments should be re-evaluated.
If a healthcare project is well-selected, it has better returns for longer periods. However, an investor needs to bet on the future of startups with novel approaches to solving existing health challenges.
Premising the viability of such a huge investment as a mall on foot-traffic from the anchor tenant is calamitous as troubled retail supermarket chains Nakumatt and Uchumi have shown. A case cited in one of the affected malls suggests that a 44 per cent drop in clients for other tenants was attributed to closing the business.
My survey of two such affected premises in Nairobi and one in Nanyuki concurs with such sentiments.
I’m in no doubt that if a similar amount to that stated above had been invested in healthcare infrastructure it could yield higher returns in the long run because when innovation meets with capital, it translates to good returns. The key is identifying such potential ideas and having credible teams behind such projects. REITs can work in healthcare too.