Student hostel developer Acorn Holdings is seeking to raise a total of Sh2.8 billion in new capital for its development and investment real estate investment trusts (Reits) before the end of February 2025 to fund the construction and acquisition of new properties.
The capital raise combining an open market offer and rights issue opened at the end of April, targeting Sh1.9 billion for the Acorn Student Accommodation I-Reit and Sh810 million for the D-Reit.
The rights issue which closed on July 31 saw existing unit holders allowed to subscribe for new equity at a discount and effectively given a first right of refusal on new units, while the open market offer continues until February 2025.
“The open market price is Sh24.54 for the D-Reit and Sh22.03 for the I-Reit. The existing unitholders enjoyed a 0.6 percent discount during the rights issue which has since expired,” said Acorn.
“The proceeds will be used for purchase of new properties and funding development costs in the D-Reit and acquisitions of stabilised assets by the I-Reit.”
This is the third supplemental offer—or cash call—made by Acorn since it created the Reits, following similar issuances in 2022 and 2023. The offers are the primary capital funding instruments for the two Reits.
The ASA D-Reit held 11 properties under different stages of development at the end of June 2024, with a total valuation of Sh10.9 billion.
These include two hostels in Karen under the company’s Qwetu and Qejani brands that it expects to offload to the I-Reit by the end of the first quarter of 2025.
The ASA I-Reit meanwhile has a portfolio of seven hostels, which had a valuation of Sh10.3 billion at the end of June.
The most recent acquisitions were the Qwetu Hurlingham in September 2023, and Qwetu Aberdare Heights II (near the United States International University) in January 2024.
The I-Reit absorbs the hostels from the development arm once they are completed, thereafter generating income from rent and utilities that are then distributed as dividends to Reit holders.
The D-Reit then uses the proceeds of the sale to settle the borrowings it had incurred when putting up the projects.
Acorn normally funds projects with a mix of about 65 percent debt and 35 percent equity.
On the debt side, the D-Reit currently has an outstanding Sh1.86 billion green bond issued in October 2019, which was used to finance eight hostel projects.
The company had borrowed Sh5.7 billion and has been making early repayments of the debt which matures in November.
In February 2022, the D-Reit contracted a Sh6.7 billion loan from Absa to fund 10 hostel projects, out of which Sh1.63 billion had been drawn down by June 2024 for ongoing projects at Juja, Kenyatta University and Hurlingam.
Acorn is also targeting a first drawdown by quarter four from the $180 million (Sh23.4 billion) debt facility from the US International Development Finance Corporation (DFC) that is the seed facility of a $700 million, 18-year financing package from local and external lenders.
