Real estate fund Stanlib Fahari I-Reit plans to acquire more properties from pension firms and insurers who will be compensated in the form of shares, also known as units, in the Nairobi Securities Exchange-listed firm.
The proposed transactions are designed to eliminate the need for Fahari to raise large sums of new capital to buy more buildings.
The deals will dilute existing shareholders of the company but will also expand the pool of income-generating buildings owned by the fund, raising earnings for the expanded investor base.
For the insurers and pension firms, the transactions will help them comply with regulations limiting the amounts of capital they can invest in properties relative to their total assets.
“In the year ahead, we aim to deliver on our growth strategy, which entails partnering with pension schemes as well as insurance companies that are currently overweight with investment property and desire to rebalance their portfolios in line with the relevant pension and insurance regulations in Kenya,” Fahari says in its latest annual report. “The targeted transactions will be implemented through asset-for-unit swaps.”
The company did not specify which of the institutional investors it has approached with the all-stock deals.
The deals are a signal that Fahari has abandoned its earlier plan of raising new capital from current and prospective investors to acquire more buildings in a bid to generate more cash and lower its expenses.
By taking units in Fahari, the pension firms and insurers will be able to diversify their property investment risks besides gaining liquidity afforded by tradability of the shares on the Nairobi bourse.
The transactions will also help those that had exceeded their property investment limits to comply with guidelines from the Insurance Regulatory Authority (IRA).
Insurers, for instance, are discouraged from holding all of their real estate investment in a single property.
A general insurer is expected to invest a maximum of 30 per cent of its total assets in property while the limit for a life insurer in the same asset class is 50 per cent.
Insurers are required to hold capital representing a portion of the credit and market risks they face in various asset classes.