Monday, 18 February 2013 / 1739hrs / The Analyst
Nigeria needs $600bn to realise its vision 2020, said a report by the IFC/World Bank and re-echoed by a serving minister of the government of Nigeria. The funding has been an issue for a while and the ‘wise bet’ has been on the capital market to make this happen.
To realise this dream, regulators and operators are agreed that the proper deployment of the Real Estate Investment Trust (REIT) model will deliver for Nigeria a self-interest approach that will engender a private sector led renaissance in the sector.
Yet, when we recall the experiments at REITs in Nigeria as envisaged here, we are left with issues that revolve around the quality of sponsors, the underlying assets, the role of the NSE/SEC in executing both due diligence and investor protection to energise an otherwise unconvinced public.
The need to give all investors on the Nigerian bourse the opportunity to invest in large-scale, diversified portfolios of income-producing real estate in the same way they typically invest in other asset classes – through the purchase and sale of liquid securities gave birth to Real Estate Investment Trust in Nigeria with Skye Bank Plc pioneering this move with its Skye Shelter Hybrid Real Estate Investment Trust (REIT) in July 2007. This was followed by the Union homes REIT – making up the two known REIT’s in the country.
This two (2) listed REIT’s have a total net asset value of N3.72bn (or $2.36bn), which is far below South Africa’s 43 REITs valued at $24bn - an indication of poor investors’ orientation/awareness in the sector despite the huge potential in the real estate sector.
This analysis posits to present a review of how this investment trust sector has fared so far on the Nigerian bourse – in terms of returns, price appreciation and patronage/acceptability.
It is trite knowledge to add that this approach to Real Estate Investment around the world has witnessed increased awareness and acceptance as a veritable form of investing in global Real Estate Securities, more especially after the financial crises of whose foundation rests solely on funding the housing market.
It would appear that the two (2) examples Nigeria has to show for the initiative presents a picture of low awareness/execution relative to the picture of a growing awareness and patronage in other counterpart countries.
We provide in this first part of our overview, the issues driving this comatose posture, review the performance of the sector and individual funds; and hopefully take on the larger issues of what investors should consider in any new developments in the sector and what type of REITS should attract their interest.
The REIT sector and the low market Capitalisation
Of the two listed REIT’s listed on the Nigerian bourse, Union Homes & Skye Shelter both have a market capitalisation of less than 1.00% of the total Nigerian equity market.
Skye Shelter has N2,000,000,000 as its trading capitalisation, representing 0.02% of total market cap while Union Homes has N12,500,989,050 with a stake of 0.12% in total market cap as well – revealing an industry/sector largely under-developed despite the huge needs, markets and potentials for the sector to flourish.
Yet, it is this missing link that makes the interest in REIT’s such compelling investment bridge to unlocking the investment opportunities in the industry.
In our opinion, the investment regulatory body (SEC) and the stakeholders in the industry, in collaboration with managers of the economy needs to do more to attract quality sponsors of REIT’s and take steps to assure the investing public, just as we see done in other countries and regional markets.
Market performance of the listed REIT firms
The share price trend of these listed firms reveals an indifference towards the REIT firms on the back of a low or narrow investor orientation as noted leading to a near comatose stance/plunge for the sector in the last five years.
The volume pattern is equally revealing as the scanty volumes of trades executed reflected more about market acceptability of the initiative over the last five years. The volume turnover in the sector remained low and the growth continued to trend southward year-in-year-out (see below).
During the five years of trading activities, the company witnessed a consistent poor patronage from investors with a -9.92% aggregate loss on the back of persistent bearish run witnessed during the period under review.
The most significant low-key patronage occurred mostly in its listing year of 2008 and 2011 with +5.72% and +3.00% gains respectively before it fell below its listing price in 2010 by -3.00%. The stock traded at N100.00kobo as at the close of financial year in 2011 and 2012 to record no price appreciation in market price and value.
More disturbing for investors has been the poor or non-existent communication with investors for some years to date. This is coupled with the absence of financial returns and performance updates from the company. The chart below graphically illustrates the life cycle of the fund.
Union Homes (UHOMREIT)
The company witnessed a barrage of sell activities right from its listing year till date as it stayed bearish throughout the four years of trading activities, indicating strong negative sentiments for the stock and with the sector.
During the four years (2008 - 2011) of trading activities, the company witnessed consistent poor patronage from investors with -83.87%% loss over a four-year period performance review on the back of the persistent bearish run witnessed during the period under review.
The stock traded at N0.50kobo as at the close of the 2011 financial year, far below its offer price of N51.50kobo per unit, representing a -99.03% plunge in market price and value; and left investors with much more questions than answers. The chart below graphically illustrates the life cycle of the fund.