Boss Talk

Einstein Kihanda: ICEA Lion boss explains restructuring of ILAM Fahari REIT


ICEA Lion Asset Management Chief Executive Officer Einstein Kihanda. FILE PHOTO | NMG

Retail investors in ILAM Fahari I-Reit who failed to take up the offer to sell their units to the property fund's manager ICEA Lion Asset Management Limited are facing an automatic buyout after three years.

The non-professional investors who left holding units after the closure of the offer and delisting of the Reit from the Nairobi Securities Exchange will have their units put into a single nominee account.

Business Daily spoke with ICEA Lion Asset Management boss Einstein Kihanda on the controversial restructuring of the ILAM Fahari REIT.

ICEA acquired ILAM Fahari REIT in mid-2020 and three years down the line the product is being restructured. I look at this and wonder whether it is an indictment on the level of due diligence that ICEA conducted before this acquisition?

If you look at May 2020, what we took over were the rights to manage the REIT, which Stanlib was previously doing and we had a fairly good understanding of what was happening with regard to the REIT.

One of the biggest factors is that we took over in the middle of Covid- 19 and as a result of that, we found ourselves in a situation where a lot of tenants in our flagship properties could not operate. So, we went through negotiating with tenants concessions, extending discounts.

The second issue was that it was at a time the anchor tenant at Greenspan Mall was going through a financial crisis and that affected all the outlets in which they were tenants.

ILAM Fahari REIT went through a valuation write-down a year or two ago. Here it is now going through a restructuring. From a sequencing standpoint, how much was the write-down a predicate for the ongoing restructuring?

The whole issue of the valuation write down was really to reflect the realities in the market. Remember we had gone through the Covid-19 period and therefore the valuations were affected. So, there were two major factors. There was Covid-19 and we had an anchor tenant that was struggling and these two factors contributed largely to the valuation write-down. We also had one of our properties that had been vacant for a while.

The proposal to exit the Nairobi Securities Exchange’s main market and join the Unquoted Securities Platform. Is this a statement from ICEA Lion regarding its assessment of the market as being broadly unsophisticated enough for the REITs market and hence the need for a segment that cushions the REIT from the market’s vagaries?

It’s a reflection of possibly the route that the REIT should have taken. If you look at the listing in 2015 November, the REIT was looking to raise about Sh12.6 billion and achieved a subscription rate of 29.0 percent.

So, out of a pipeline of about 12 assets that were going to be acquired, only three were acquired by the REIT. That meant the critical mass that was required to start the REIT did not materialise and, therefore, I would say it started off on a back foot.

Is the 83 percent premium offered for the ongoing units’ redemption an indication of ICEA Lion’s assessment of the discount the unit has been trading at the market?

We arrived at that prime to a weighting of different methodologies, including the dividend discount model, the net asset value and then arrived at a weighting based on our assessment of what contribution those particular methodologies and how they apply in our market.

Having looked at how the share price has performed and having arrived at what we felt was a reasonable valuation we felt that would be a reasonably attractive premium.

A while back ILAM Fahari REIT considered disposing of some non-core assets. Is this still on the table and how much would you be seeking to unlock from this?

Yes. One of the issues we are addressing is optimising the portfolio that we have and we needed to look at the things we need to position the portfolio to give optimal returns. Some are doing well, others are not performing.

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