New N20billion REIT lifts Nigerian real estate industry
Fresh prospects maybe on the card for real estate investors seeking property ownership without the attendant expenses or difficulties of being a landlord, if statements made recently by one of Nigeria’s leading property development company – Top Services Limited (TSL) are anything to go by.
The company with specialty in providing “neighbourhood” malls has announced, it will float a N20 billion Real Estate Investment Trust (REIT) in the capital market.
REITs are corporations or trusts that use the funds of many investors to purchase and manage income property and/or mortgage loans. It is traded on the Nigerian Stock Exchange (NSE) just like shares.
It offers tax advantages to investors and provide a liquid way to invest in real estate, which is an otherwise illiquid market. Another benefit of REITs is that they allow investors to share in non-residential properties like hotels, shopping complexes, malls, and industrial properties.
REITs require no minimum investment and do not necessarily increase and decrease in value along with the broader market. However, they pay dividends no matter how the shares perform.
In Nigeria, REITs are highly successful and provides less risky investment options in real estate to both small and big investors, regular and dependable income to the unit holders and attraction of massive Foreign Direct Investment (FDI) in the real estate sector. It enjoys pockets of tax exemptions that attract investors and fund managers such as exemptions of investors from withholding taxes (WHT) as well as Value Added Tax (VAT) and Capital Gains Tax (CGT) on sales of these units or securities.
Currently, there are four listed property companies on the NSE with a combined market capitalisation of over N45 billion. These include Skye Shelter Fund PLC, Union Homes Real Estate Investment Trust, UPDC and UACN Property Development Company.
Experts say, the property companies listed, UACN Property Development Company and the UPDC REIT have the most diversified investment portfolio which include hospitality, office, residential, retail and hospitality assets. Skye Shelter Fund PLC and Union Homes Real Estate Investment Trust are predominantly focused on residential property assets.
But with the proposed entrance of the TSL, the equation may likely change. The close-ended TSL REIT offer, consisting of 20 million units for subscription at N1, 000 per unit started on February 1, 2017, with First Ally Capital as its lead issuing house and First Ally Asset Management as its fund manager.
Under the scheme, TSL committed itself to building and delivering “neighbourhood” malls that are affordable yet of high quality to attract anchor tenants. To date, TSL has developed four malls; Adeniran Ogunsanya Mall, Surulere, Apapa Mall, Apapa, Cocoa Mall, Dugbe, Ibadan, Oyo State and Akure Mall, Akure, Ondo State, all of which are currently operational and have occupancy rates of over 80 per cent.
Chairman of Top Services Limited, Chief Tokunbo Omisore, said initial investments by the REIT would focus on retail-related real estate including the highlighted four malls owned by TSL. Promising stable and regular income distribution to investors in the REIT, Chief Omisore disclosed that the malls could boast of diverse corporate tenant profile with staggered rental renewal periods, which prevents mass vacancy at any one period.
He listed the strengths of the TSL REIT to include predictable cash flow, multiple anchor tenants at each location with long-term leases, rental payments agreements that are indexed to the naira/dollar rate, zero leverage of assets at inception, while Investors will not take on development, construction or financing risk. In addition, the malls have high average occupancy rate as all the malls are at or above 80per cent occupancy levels.
For Mr. Winston Osuchukwu, Managing Director of First Ally Asset Management, Fund Manager for the TSL REIT, “investing in the TSL REIT allows for diversification of investment portfolio thereby reducing portfolio risks.”
He assured investors that professionals with great care, top skill, prudence and diligence would manage the REIT. For instance, the Investment Committee consists of professionals of diverse skills and in depth knowledge in real estate investment and operations. In addition, the REIT is transparently structured and backed by reputable organizations including ARM Trustees Limited, Stanbic IBTC Bank Plc and Leadway Assurance Plc,”
Osuchukwu appealed to institutional investors, particularly the Pension fund administrators (PFAs), to take advantage of the REIT, adding that the REIT’s excess capital will be invested in upgrading existing facilities, government securities and real estate related investments to enhance the yield of the fund, among other projected income streams.
According to the CEO of First Ally Capital, Mr. Ebenezer Olufowose, access to long term financing like that of the PFAs can help lower cost of rent for tenants on the long run. “This is an opportunity to monetize existing assets and developing TSL investment with some borrowed funds from the bank. We are not bringing in asset, the asset already exist, the cash flow are there, they are guaranteed and we have anchor tenants like shoprite, and other major tenants who have contracts, signed contract with the sponsor.
“Already there, it is secured and it is index to the dollars. So investors will have investment that will yield them good returns progressively over the years. So what’s going to be different here is that would be, if you look at most of the previous event, you raise the money and then you go to build and every time you go to do that, you realize that you have cost over loans, you are not able to finish the project and then you have to move back and raise other cash and all that, but in this case the asset are there.”