Fusion Real Estate Development trust – commercial

PERIOD : June 20 to 26, 2016.

23/06/2016 : The Daily Nation, Page 23

• Fusion Investment Management, The REIT Manager of the Fusion Real Estate Development (FRED) trust – commercial is pleased to offer for sale 100,000,000 units (“offer units”) at an offer price of KES 23.00.
• FRED – commercial, the first D-REIT in Kenya, is a close ended fund, established through a trust deed and structured as a common law unincorporated trust. The Independent trustee of FRED Commercial is the cooperative Bank of Kenya and the REIT promoter is fusion Capital Limited. The units will be traded on the Nairobi Securities Exchange.
• The objective of FRED Commercial is to generate income and capital growth by investing in real estate development projects. Proceeds of this offer will be invested in the acquisition development and construction of ‘Greenwood City’- a mixed use development featuring a shopping mall, a modern office block and high end two and three bedroom apartments located in Meru, Kenya.Read more

New Telkom Kenya Major shareholder looking to venture into real estate.

23/06/2016 : The Daily Nation

• Helios Investment patners, the new majority shareholder of Telkom Kenya, has set up a real estate division to tap into the Telecom Company’s Sh 13 Billion prime property holdings.
• Telkom’s vast real estate wealth is estimated at Ksh 13 billion, according to a valuation report Orange had prepared ahead of failed negotiations to sell the stake of Nigeria investors in 2015.
• A Telkom Kenya Valuation shows that the firm has 335 properties priced at Ksh 9.4 Billion. Most of the pieces of land have buildings that host telephone switches, repeaters or microwaves.
• The investors information report separately lists Telkom as owning 39.1 hectares of land and real estate properties along Nairobi’s Ngong road with11 residential buildings, a sports club and offices , all valued  at approximately sh 4 billion.
• The setting up of the real estate divison is in line with early analysts’ predictions that had said  the pontential investors were eyeing Telkom Kenya mainly for two key reasons – the real estate properties and the frequencies

Lack of control boards affecting farmland transaction

23/06/2016 : The daily Nation, DN2 Page 3

• Land transactions have stalled for the last two months following the disbandment of land control boards, affecting the leasing and selling of farmland.
• The institutions of Surveyors of Kenya (ISK) last week said the freeze in agricultural land transactions is also hurting other critical sectors like banks and real estate thanks to reduced lending and property development respectively.
• Land Cabinet secretary Prof Jacob Kaimenyi disbanded the boards in late April to curb widespread the corruption in the land sector, widespread corruption in the land sector, promising they would be reconstituted in two weeks.
• The boards, with a membership of between seven and 12 people and chaired by county commissioners or deputy county commissioners approve the buying and selling or sub-division of agricultural land in the areas of Jurisdiction.
• An official from the land ministry said that the land boards in several counties have already been constituted while others are undergoing vetting.

Government wants to buy Teleposta towers

23/06/2016 : The Daily Nation, DN2 PG. 3

• The Government is keen on purchasing Teleposta towers from Telecom Pension scheme and provident Fund to cut down on costs of leasing offices space.
• About 90% of office space at teleposta towers is occupied by government is also considering purchasing land from the Kenya Railway to construct offices as a way of saving the exchequer money spent on renting offices.
• The pension scheme had in June last year put up Teleposta Towers for sale and had valued it at about Ksh 5.5 billion.
• At that time, the pension’s leadership had approached the government but was open to selling the property to private firms if the government delayed the purchase.

Estate targeting middle income earners to be built at clay works.

23/06/2016 : The Daily Nation, DN2, Pg.4

• A new estate targeting middle income earners will be built at Clay Works along Thika Road, adding housing offers along the highway.
• The apartments developed by Agricultural and Industrial Holdings Ltd, will cost Sh2.95b
• Apartments are becoming increasingly popular compared to stand alone houses as developers seek to maximize returns on expensive land
• The propose project will involve the construction of 560 apartments in 14 blocks on a piece of land measuring 16 acres says the project owners
• The need for the project is highly triggered by the need to improve residential housing conditions in Nairobi City County.
• The houses will be two and three bedroom units
• The project involves the construction of a community centre but the report does not indicate what facilities it will have
• The project is relatively large compared to other developers in the country and offers a chance for cheaper houses due to economies of scale.

Developer breaks ground for 204 apartments in Kangemi

23/06/2016 : The Standard, Home & Away, Page 2

• Real estate in Waiyaki Way Developers has broken grounds for 204 apartments targeting middle-class in Nairobi’s Kangemi Estate.
• The project will, set to take 22 months, will see Mountain Gardens Apartments have 160 3-bedroom houses, 32 two-bedroom units and 12 penthouses
• The road to and from town is dual carriage making the apartments accessible.

Nyali welcomes Sh550m high-end housing project

23/06/2016 : The Standard, Home & Away, Pg.2

• Mombasa’s Nyali area is set to welcome a new sh550m housing development.
• Links Garden Apartments and Business Centre, a 12-storey complex, still at its early stages of construction will be ready in October next year.
• The 14 apartments will be a blend of a modern concept offering refined aesthetics to give rise to one of the most prestigious residences in Nyali, said the developer.
• With prices ranging from Sh26m to sh36m for apartments and sh12m to sh16m for the office suits, Links Gardens will be among the most expensive addresses on Links road.
• There have been cases of apartments retailing beyond sh40m in this robust real estate hub of Mombasa. The developer said that they were deliberately pricing themselves out of the competition.

County chiefs blame state for poor roads

22/06/2016 : The Daily Nation, Pg.25

• Governors have blamed the poor state of roads in counties on the failure by the national government to release funds in time as well as gazette additional roads handed over to them by the high court last year.
• They said that despite counties receiving an extra 31,000km of roads by March 2014, no funds had been released to manage them.
• It is surprising that the national government is handling only 39,995.1km and yet has an allocation of approximately sh79b, said the council’s chairperson.
• Munya said delayed funds had denied the county governments a chance to boost connectivity.
• Governors had in January contested the non-transfer of a section of class D of roads by the Transaction Authority as ordered by the High court.
• The chairman of the council’s infrastructure committee accused the authority of denying counties parts of the classes D of roads which they said they were upgraded to classes C and handed over to the National government

Oparanya in plan to upgrade 200km road network to Bitumen standards , Kakamega County

20/06/2016 :The Business Daily,Page 14

• Speaking at the commissioning of the 5.7km Khayega-Shinyalu road, governor Oparanya said his administration had shifted focus to ward based projects to uplift the living standards of residents
• The contractor working on the Khayega-Shinyalu was given 9months to compete it or risk losing the job and it cost sh248m to tarmac.
• He said the move to tarmac roads in the county targets to reduce maintenance costs. Sh300m is used yearly to maintain roads.

Fusion Capital limited issued the country’s first Development Real Estate Investment Trust (D-REIT), to the public at an IPO of Kshs 23 per unit. The offer closes on July 15^th.

 19/06/2016 :Cytonn Weekly Report no. 25

• During the week, Fusion Capital opened the sale of its Development Real Estate Investment Trust, (D-REIT), which has been dubbed Fusion Real Estate Development (“FRED”) – Commercial, to the public at an IPO price of Kshs. 23.0 per unit. Key points to note from the issuance are:
  • Fusion Capital, the promoter of the REIT, aims to raise Kshs. 2.3 bn through the sale of 100.0 mn units closing on July 15th 2016, and will be listed on the Nairobi Securities Exchange on July 28th 2016.
  • Units in the REIT are targeted to professional investors, with a minimum application size of Kshs. 5.0 mn, equivalent to 218,000 units.
  • The trust will be a close-ended fund and existing unit holders will have the right to approve the additional issuance of units for further funding of the REIT’S activities.
  • The Kshs. 2.3 bn of money raised will be used to develop a mixed use development comprising of residential, office and retail project in Meru, Kenya, a project known as Greenwood City
  • The base case construction period for the development is at 24 months, with a post-development period of 12 months for the REIT to earn rental income
  • As per estimates from Fusion, the project will deliver Kshs 1.2 bn of profit, and a project IRR of 20.3%
• The introduction of laws regulating REITs in 2012 has seen firms show interest in the newly introduced instruments as an alternative to bank loans and internally generated money when financing projects. Last year, Stanlib investment launched the first I-REIT in the market raising Kshs 3.6 billion through an income REIT that is currently listed on the Nairobi Securities Exchange.
• In a move to boost the levels of mortgages in the Kenya market, Treasury has allowed the National Social Security Fund (NSSF) to finance mortgage loans by removing restrictions imposed by Section 38 (1) (c) of the NSSF Act. This will allow the public pensions fund manager to channel mortgage financing to members through banks, non-banking financial institutions and insurance companies. This move by Treasury, may be seen as positive however given the rates shall be commercial, it may not have any significant impact on the Kenyan economy, as majority will still be priced out of a loan. At an average loan size of Kshs 7.5 million, few Kenyans can afford homes financed by commercial funding.

The United Kingdom held a referendum to determine if they should remain or leave the EU. With the outcome being an exit, we examine the implication of this in both global and local markets.

• This week, saw a historic referendum vote take place in the United Kingdom (UK) on whether the UK should remain as part of the European Union (EU). The result of the vote was 52% voted for leaving the EU against 48% who voted for remaining in the EU.
• The European Union (EU) is a politico-economic union of 28 European states. The EU operates through a system of supranational institutions and intergovernmental-negotiated decisions by the member states. The EU has developed an internal single market through a standardized system of laws that apply in all member states. Within the Schengen Area, passport controls have been abolished to allow free movement of citizens of member states.
• EU policies aim to:
  1. ensure the free movement of people, goods, services, and capital
  2. Enact legislation in justice and home affairs.
  3. Maintain common policies on trade, agriculture, fisheries, and regional development.

The main reasons highlighted by the proponents of the Brexit were:

1. The EU threatens the UK’s sovereignty. A series of EU treaties over the past couple of decades have shifted increasing amounts of power from the individual member states to the central EU bureaucracy in Brussels, especially with regards to competition policy, agriculture, and copyright and patent law.
2. While wielding a lot of power, The EU bureacrats in Brussels were perceived to be insular to popular pressures
3. Excessive EU regulations hinder operations/growth of British businesses.
4. The EU allows for too many immigrants to enter the UK, which has increased competition for jobs, led to lower wages for the lower-middle class and has caused an increased security issue.
5. The UK would not have to make the mandatory annual contribution to the central EU budget worth about GBP 9.0 bn.

The implications of the Brexit on the global economy include:

1. UK and EU: For the UK, this means renegotiating trade agreements with the EU. Scotland supports the EU and may want to secede in order to remain part of the EU. And for the remaining EU members, there is increased uncertainly as nationalistic sentiments in other EU countries may gather steam and seek their own exit referendums.
2. US: Federal Reserve is likely to adopt a wait-and-see stance in its attempt to increase rates, as Brexit referendum was one of the reason cited as to why the Fed chose to leave rates unchanged in its June meeting. Going forward the decision by the Fed will largely depend on how this will affect both the stability of European and global economies. Politically, the Brexit victory, which was propelled largely by nationalistic sentiments and anti-immigrant rhetoric in the UK, may embolden the Donald Trump’s “make America great again” theme, which has gained momentum due to similar nationalistic and anti-immigration sentiments in the US.
3. China: The Chinese economy is one of the losers of the Brexit as EU is one of China’s biggest trading partners, accounting for 16% of the China’s total export in 2015 with 2.6% destined to the UK. A downward revision of growth prospects of these two economies will directly affect external demand for China’s products
4. Asia: While Asian markets trade linkage with UK fall below 2%, we are likely to see impacts on Asian markets coming from the performance of Euro Area as direct trade accounts for between 10%- 15% of the total exports. If the Brexit leads to rounds of referendum in other EU member state, which will further weakens the growth prospects for EU, the Asian markets are likely to feel the impacts
5. Sub-Saharan Africa (SSA): Growth prospects in SSA will remain muted mainly due to weaker commodity price environment and also renewed risk as a result of volatility that may come from the Brexit. The impact of financial market developments is likely to be felt much more immediately. Rising risk aversion will be particularly negative for the SSA region, which has already seen trend deterioration in creditworthiness, with Brexit potentially exacerbating current financing difficulties.

Having considered the effects of Brexit on the global markets, we now look at the potential impact of Brexit on Kenya. There are a number of areas to consider, most importantly trade and renegotiation of contracts for trade:

1. Kenya exports tea, coffee, and flowers to UK, equal to 27% of fresh produce in UK, 56% of black tea in UK. Any renegotiations of the deals because of Brexit will lead to export delays, and loss of revenue. This is made even worse as it may lead to the current account deficit widening, as well as less inflows of foreign exchange
2. Kenya is likely to face capital flight as investors seek safe havens like US treasuries and gold which may exert pressure on the Kenya Shilling in the short term
3. Kenya in 2015 exported 1.3bn euros worth of products to the EU. A downward revision of growth prospects for the EU economies will result into lower external demand for Kenyan products, which may negatively affect the current account position

There is another potential impact in terms of tourism. UK is the largest exporter of tourists to Kenya, benefitting our local economy in terms of foreign exchange earnings, visa revenues, domestic spending, and the direct and indirect jobs created through the upkeep of the hospitality sector. UK’s vote to leave the EU has caused a significant depreciation in the Sterling Pound, which will make it more expensive for UK tourists to travel to Kenya, having a negative impact on our tourist arrivals and GDP growth, at a time when the tourism sector is struggling to recover. Read more