Member of the NIC BANK GROUP

TRADE IDEA

KENYA

STANLIB FAHARI I-REIT

REITs IPO

A diversication tool with the potential for good returns

04 November 2015

The Stanlib Fahari I-Reit oers investors an alternative to the conventional asset

Key Features of the Stanlib Fahari I-Reit

classes available; equities, xed income and real estate. This Income Real Estate
Investment Trust, enables investors to be indirectly invested in the real estate

Stanlib Fahari I-Reit

sector thus beneting from the rental income and capital gain on sale of the property. Taking part in the IPO enables you to own units (shares) which you can
readily trade, aording you the ease and liquidity (ease of buying and selling)

Amount

KES 2.6mKES 12.5bn

Purpose

Investment in Real Estate

Offer Price

KES 20

Units of Sale
Allocation

625, 000,000

normally absent from actual real estate transactions. Given that the I-Reits are
easily tradable, investors will also benet from the price movement of the units
similar to shares.

Key statistics of the Initial Public Oer

The oer opened on the 22nd of October and closes on the 12th of November
2015 with the listing date set for the 24th of November 2015. The Stanlib Fahari I-

Local Institutions: 55%

Reit seeks to raise KES 12.5bn through issuance of 625,000,000 units priced at KES

Retail: 25%

20 each. The minimum acceptable amount to be raised is KES 2.6bn. The funds

Foreign Institutions: 20%

received are to purchase properties that the Reits Manager, Stanlib has identied.

Locals-KES 20,000

Presently, these seed properties valued at KES 2.4bn are; Greenspan Shopping
Mall in Donholm area, Bay Holdings and Signature International, both oce

Minimum investment Institutions KES 1m

75% Real Estate

properties located in Industrial area and with the la:er inclusive of a warehouse.
These properties are to be purchased within 6 months of the I-Reits listing. According to the prospectus, the Stanlib Fahari I-Reit after receipt of the IPO proceeds, will enjoy a grace period before it can purchase the remaining prospective
properties. 75% of the proceeds (Total Asset Value) must be invested in eligible
real estate within 24 months of authorization while the remaining 25% may be

Target Portfolio

Eligible Securities

25% cash and cah equivalents

including money market instrumemnts
100% ownership in property
assets
100% ownership in land

invested in cash and cash equivalents from time to time.

100% ownership in leasehold
land with minimum lease
period of 25 years
100% ownership companies
with real estate holdings

Distribution of returns to investors

A minimum of 80% of income generated other than unrealized fair value gains is
required to be disbursed to Reit holders. The income includes rental income, realized capital gains on property sale and dividends from wholly owned subsidiar-

Target IRR

14% excluding Reit expenses

Tax

Subject to zero taxation

taxes.

Opening Date

22/10/2015

Should you participate?

Closing Date

12/11/2015

ies.

The income and capital gains distributed are exempt from both income tax

and Capital gains Tax for as long as the Fahari I-Reit complies with the REIT Regulations, remains authorized by CMA and is registered by the commissioner of

The Fahari I-Reit will oer diversication benets given its low correlation with
conventional asset classes. This will prove a:ractive especially in an equities
downturn. However, fundamentally, the performance of Reits is determined by
the a:ractiveness of the underlying propertyits ability to maintain a high occupancy rate and an a:ractive rental yield. All this boil down to the location and the
nature/quality of tenants the property can a:ract. In markets where Reits have
been in existence, capital return (appreciation in unit price) has over the years
been the largest chunk of total return vis a vis income return (dividends).
Please note that this is not a research report but a trade idea

NIC Securities

04 November 2015

Announcement Date 20/11/2015

Listing date
24/11/2015
Source: Stanlib Fahari I-Reit Prospectus 2015

Member of the NIC BANK GROUP

TRADE IDEA

KENYA

STANLIB FAHARI I-REIT

REITs IPO

Additional information on the Stanlib Fahari I-REITs

Definition: A reit is a unit of investment in a scheme that makes cash distributions to unit holders from investments made in
income generation real estate property. Benefits include access to Kenyas profitable real estate sector as well as diversified and
steady income flows. A Reit, (Real Estate Investment Trust), is a unit of investment in real estate, comparable to a share which is a
unit of investment in a company. This investment product allows individuals to collectively participate and enjoy distributed
returns from Kenyas lucrative real estate market. The investment scheme owns and manages the various income generating real
estate on behalf of and for the benefit of investors. Proceeds include rent received, capital appreciation on property, and dividends from wholly owned subsidiaries that own real estate besides unit price gains on the stock market since it is a listed, tradable security. Price gains will be market driven and will depend on the performance of the underlying which may not necessarily
represent the Net Asset Value (NAV) of the fund.
The REIT Manager, Stanlib: Stanlibs Fahari I-Reit will be the first Income Reit to be introduced in Kenya. The scheme seeks to
raise up to KES 12.5bn for financing various real estate projects located in Kenya with a minimum target return of 14%. Stanlib
investments, the Reit manager has invested in KES 2.5bn worth of property spread across Africa, including retail malls in South
Africa, Ghana, Nigeria and Uganda. It is a closed fund with the leverage limit set at 35%. However upon recommendation from
the Reit Manager and subject to the trustee approval, a secondary offering or a debt issue above the 35% limit can be considered.
However currently theres no regulation that for secondary Reit offerings in Kenya. Subject to the trust deed, the scheme will
have a maximum life of 80 years. Stanlib Kenya will be the Reit manager reporting to the Trustee, Coop Bank, who represent the
interests of the Unit holders. Both of them are to ensure that the scheme is administered according to the Investment policy. The
trustees duties and responsibilities are outlined in the trust deed. The trustee may call a meeting of unit holders on occasion
whereby each unit holder gets one vote regardless of contribution.

Use of the Net Proceeds and properties targeted: The fund will initially invest in cash, deposits, bonds and other money market
securities with 75% of the Total asset Value (TAV) to be converted to property in 2yrs. Legal registration for seed properties,
worth KES 2.4bn will be complete within 3 months after close of the offer with their acquisitions done in 180 days. These include
Greenspan Shopping Mall; Bay Holdings and Signature International, both of which are office properties. Prospective properties,
worth about KES 8.3bn, will be set up in various parts of the country including a retail mall in Mombasa. Concentration will be
on retail property, (50%) but will also include residential, commercial and industrial buildings and specialized structures such as
schools and student accommodation, medical and manufacturing facilities.

Valuation:
The future expected cash flows of the properties are what will determine the market value of the listed units. As is common with
companies invested in real estate i.e Centum Investments, the Net Asset Value ((Assetsliabilities)/ issued units)) is normally a
barometer used to estimate the market price of the share, and in this case that of a listed REITs unit. Depending on the performance of the business, the market price can trade at a premium or discount to the NAV.

Presently, given the uncertainty of the expected income for the Stanlib Fahari I-Reit ( given that aside from what can be modeled
which is the three seed properties valued at a cost of KES 2.4bn, the prospective properties (yet to be acquired and without an
idea of expected rental incomes) cash flows are largely unknown limiting the valuation process.

NIC Securities

04 November 2015

Member of the NIC BANK GROUP

TRADE IDEA

KENYA

STANLIB FAHARI I-REIT

REITs IPO

Total income from a capital and income return point of view

NIC Securities

04 November 2015