Individual investors with limited capital are locked out from participating in real estate investment trusts (Reits) as issuers continue to favour institutional investors, avoiding the retail segment previously deemed as jittery and unsophisticated.
Earlier this week, Africa Logistics Properties Holdings (ALPH) announced its plan to raise up to Sh5 billion from issuing 39 million units to investors who can pump in a minimum of Sh5 million, keeping up with the most recent Reit issues.
The high threshold limits the type of investor participating in the offer to institutions and high-net-worth individuals.
Market participants state that the high entry requirement has mainly been a result of issuers pushing for the restriction as they favour institutional and wealthy individuals over the average retail investor.
“There is always a reason why an issuer or sponsor will decide whether they want an open or restricted offer. We make sure to consider the issuer’s own view but we also look at how we are trying to develop the market and the risks involved,” said Frank Mwiti, the Nairobi Securities Exchange (NSE) who is also the vice chair of the Reits Association of Kenya.
Other recent Reit offers have also restricted participation to wealthy and institutional clients including Batian Property Fund, ILAM Fahari I-REIT and Laptrust Imara I-REIT.
Retail investors are deemed to lack adequate information on the property funds, resulting in the undervaluation of the Reits in the open public markets.
ICEA Lion Asset Management (ILAM) protested the perception of the funds by individual investors as it delisted its Fahari Reit from the main segment of the NSE in 2023 and relaunched it as a restricted fund with minimum trades of Sh5 million.
The asset manager moved its Reit to the unquoted securities platform, terming the main segment as unsophisticated to cushion its performance from market vagaries.
“It’s a reflection of possibly the route that it should have taken (before). If you look at the listing in November 2015, the Reit was looking to raise about Sh12.6 billion and achieved a subscription rate of 29 percent," said ILAM chief executive officer Einstein Kihanda.
"So, out of the pipeline of about 12 assets that were going to be acquired by the Reit, the critical mass that was required to start the Reit did not materialise and therefore, I would say it started off on a backfoot."
Reits allow investors to acquire interest in real estate projects by owning units that earn a profit or income where the units work like shares, allowing investors to buy or sell their holdings.
The segment however remains niche as both the number of issuers and participants remain subdued.
Issuers have cited high launch costs, lengthy registration processes and limited market awareness.
Mr Mwiti said the market is confronting the challenges presented as it seeks solutions that would fit both issuers and all market participants.
“Reits are still a growing segment. The conversations we are having are to encourage more retail participation and in doing that, we are seeking to also walk that journey with potential issuers,” he said.
“What we expect is that as more of these instruments come to market, the ability to tap retail investors and keep them interested will grow,” he added.
