An asset management firm owned by the Philip Ndegwa family has made an offer to buy out retail investors in property fund ILAM Fahari I-Reit at Sh402.4 million or Sh11 per unit, representing a major premium to the trading price on the Nairobi Securities Exchange.
ICEA Lion Asset Management Limited, which manages Fahari, has offered to buy a total of 36.58 million units (shares) as part of a plan to delist the property fund.
The offer price represents an 83.3 percent premium to Fahari’s closing price of Sh6 on Monday. It, however, represents a 41.3 percent discount to the fund’s net asset value per unit of Sh18.75 as of June.
The partial buyout is designed to restrict the fund’s owners to high-net-worth individuals and institutions who can support it to scale up its operations, the Reit manager said.
“The Reit Regulations state that a restricted I-Reit can only have professional investors who meet a minimum threshold of Sh5 million and so the ICEA LION Asset Management Limited … as promoter will be funding the redemption of units from unitholders below that threshold,” reads part of communication sent to the press.
ICEA Lion’s chief executive Einstein Kihanda declined to answer questions on the proposed transaction which is expected to open on September 6 and close on October 6. Only investors on record as of September 1 will be eligible to participate in the offer.
The asset manager acquired five million shares of Fahari in 2021, giving it a minority stake of 2.7 percent. The offer it has made, if successful, will lift its ownership to 22.9 percent.
The offer is expected to be lucrative for investors who bought Fahari’s shares on the cheap, including those who acquired 146,900 units on Wednesday last week at an average price of Sh6.08.
Fahari’s share price has languished since its listing in November 2015, trading far below its book value amid weak earnings that have seen its return on net assets stuck in single digits.
ICEA says it explored various options to improve the performance of the property fund but they could not be implemented in the current context of a low share price and the presence of retail investors unwilling to inject new capital via a rights issue.
The growth strategies considered were buying more properties in cash or through a swap where property owners would be allotted units in Fahari.
“The Reit manager has spent considerable time reviewing all options to ensure the sustainability of Fahari and this transaction represents the most optimal solution,” ICEA said.
“It is important that Fahari can be in a position to grow its asset base considerably in the next few years and it can only do so if it converts into a Restricted Reit and delists from the NSE. Upon successful implementation of its strategy, a re-listing on the NSE will be reconsidered after three years.”