A Proud Heritage of Real Estate Innovation
Writer: Emily Jarvis
Project Manager: Stuart Parker
STANLIB Kenya is a leading fund manager in the East African region with a strong track record which has been established over many years of managing assets for a wide array of clients including pensions, endowments, parastatals, corporates, governments, NGOs, churches, savings and credit co-operatives, and charitable organisations.
Reflecting a proud heritage of real estate innovation, STANLIB was an active participant in the engagements between real estate professionals and the Kenyan regulatory authorities which gave rise to legislation enabling the creation of Income (and Development) Real Estate Investment Trusts (“I-REITs” and “D-REITs” respectively).
Once the enabling legislation was in place, STANLIB Kenya implemented a project to build the framework of Kenya’s first I-REIT. This was followed by the November, 2015 Initial Public Offer (IPO) which culminated in the listing of the STANLIB Fahari I-REIT. In addition to raising equity capital, this listing introduced the REIT sector to the Nairobi Securities Exchange.
Africa Outlook caught up with the REIT’s Chief Executive Officer, Anton Borkum about STANLIB’s past, present and future; as well as its forecasts for the industry at large.
Africa Outlook (AfO): Could you firstly talk me through the wider Group structure of the business; its current geographic footprint, its portfolio size, and the current range of services and solutions offered by STANLIB in Kenya?
Anton Borkum (AB): STANLIB is a leading asset manager with on-the-ground operations in 10 African countries. It is among the largest unit trust companies by market share in South Africa. STANLIB manages and administers more than R560 billion (US$ 46 billion) in assets for more than 437,000 retail and institutional clients across Africa (as at end June, 2015). It offers a range of investment capabilities.
STANLIB Kenya is the Asset Manager of the STANLIB Fahari I-REIT, Kenya’s first REIT listed on the Nairobi Securities Exchange. As such, STANLIB Kenya is responsible for all elements of the Fund’s operation and performance.
AfO: Why in particular are you bullish on real estate in Kenya?
AB: The Kenyan economy has enjoyed a number of years of GDP growth in excess of five percent per annum. This is expected to continue, with research houses such as The Economist estimating Kenya’s real GDP growth for 2015 at 5.4 percent, with medium-term growth thereafter predicted around six percent; according to the EIU Country Report, Kenya October, 2015.
Such economic growth is stimulated by a rapidly urbanising population. 2010 statistics estimated that 22 percent of the Kenyan population resided within urban areas, and this is expected to exceed 50 percent by 2050, according to the World Bank 2011 Report; Developing Kenya’s Mortgage Market.
A 2013 Government-commissioned report - Hass Consult/KPDA State of Development Report Q4 2013 - estimated annual housing demand at 200,000 units, which is significantly above the annual supply of 35,000 units. Urbanisation, together with an influx of expatriates working in Kenya for international firms and growth in personal wealth have led to significant increases in residential house prices.
By 2014, economic activity related to real estate in Kenya had grown so much that the property sector was estimated to be the fourth largest contributor to the national GDP, according to Knight Frank’s Kenya Market Update for the second half of 2014.
AfO: What specific customer and market trends are you subsequently observing in the property sector in Kenya then, and how are you responding to this through your service offering?
AB: The incentive for most Kenyan investors to invest in real estate is largely centred upon expectations of reliable capital growth. The challenge is to provide a real estate product which delivers capital appreciation, while at the same time providing a consistent income stream.
With the listing of the STANLIB Fahari I-REIT in November, 2015, a new product was introduced to the Kenyan investment market. REITs provide a mechanism for aggregating large pools of capital (on behalf of investors), which can then be deployed into real estate investments. In this manner they deepen the capital markets in which they operate.
STANLIB Fahari I-REIT provides both retail and institutional investors with a listed investment product, with underlying exposure to the Kenyan real estate market. It provides investors with a transparent, well regulated, tax efficient investment structure, offering income and capital returns as well as an opportunity for diversification into a new asset class, namely listed real estate.
For international investors, STANLIB Fahari I-REIT offers exposure to the growing Kenyan economy with specific tax dispensation from the Kenya Revenue Authority, a transparent investment vehicle allowing investors to understand what they have invested in, accessibility, liquidity, returns from net rental income as well as capital gains and a regulatory oversight of the Kenyan Capital Markets Authority.
AfO: How much of a local focus is there in regards to STANLIB Kenya’s employment and supply chain management strategies?
AB: At STANLIB Kenya, we have a full complement of local staff while leveraging our strength in local expertise to navigate the local landscape and draw from the deep experience of our networks.
The synergies obtained from such ventures bring out the best investment solutions for our target markets.
For example, The Capital Markets Authority was pivotal in coordinating the involvement of different stakeholders in the process which led to the promulgation of enabling legislation.
We would like to thank all our suppliers and advisors for their contributions towards the formation of the I-REIT and the success of the IPO, as well as all our STANLIB colleagues.
STANLIB Kenya also actively participates in CSR (corporate social responsibility) activities. We have a very active CSR committee which steers the annual activities that the STANLIB staff members participate in.
AfO: Looking forward, if we were to speak again in three-five years’ time, what progress and development would you hope to see in the Kenyan listed property market?
AB: We would like to see the successful listing of several other I-REITs and D-REITs. This will provide investors with investment choice, as well as comparable performance data for the listed property sector.
In addition, REITs provide price disclosure in terms of buying and selling prices of their assets, and as more REITs are listed, it is anticipated that the market will benefit from greater trading activity in real estate assets, and the universe of publicly available data will grow.