By Matthew Don
Fund Managers of UPDC REIT said the performance of the REIT was affected negatively by the challenging macroeconomic environment.
They are worried that Victoria Mall Plaza Phase 1 (VMP -1) which was occupied by Mobil Nigeria Limited until October 2015, is currently vacant and not generating income.
The projections during the initial public offer (IPO) of the REIT were that the properties purchased by the REIT between 2014 and 2015 would be sold in 2016, and would generate some income.
“The expected income on the assumed sale will not come in as the REIT was unable to acquire additional properties between 2014 and 2015, partly due to the macroeconomic environment and also because the fund manager could not identify qualifying assets which meets the REITS benchmark returns. In order to compensate for the unearned rental income on VMP1, the Fund Manager in consultation with the Investment Committee decided to discontinue the sale of units of Abebe Court as the property is currently fully tenanted and generating rental income. This implies that the REIT would not earn any capital appreciation on sale of property in 2016 and rental income on VMP1, as assumed in the projections. These resulted in a negative variance of 58.37 per cent between the projected income and actual income earned by the REIT as at June 30, 2016.”
These were the feelers following the UPDC Real Estate Investment Trust (REIT) the “Trust” financial statements for year ended December 31, 2016 which had been released to investors at the Nigerian Stock Exchange.
The net income of UPDC REIT in the review period declined to N1.844billion from a high of N3.354billion in 2015. Operating expenses increased to N331.943million from N282.634million in 2015. Profit before tax (PBT) declined to N1.512billion from N3.072billion in 2015; while Profit after tax was N1.512billion from a high of N2.989billion in 2015. The UPDC Real Estate Investment Trust the “Trust”, established in June 6 2013, is a close-ended Real Estate Investment Trust which is listed on the Nigerian Stock Exchange (NSE). The REIT traded a total of 4.64 million units in 2016 and closed at a price of N10 on December 31, 2016. The earnings yield on investment in the REIT as at December 31, 2016 was 5.9per cent. Its asset allocation shows: Real Estate Assets (79.84 per cent); Real Estate Related Assets (2.73 per cent); and Liquid Assets (17.44 per cent).
“Although the allocation to Real Estate asset class exceeds the target minimum of 75 per cent, the allocation to liquid asset exceeds the maximum investment of 10 per cent. This is as a result of the inability to find qualifying real estate or real estate related assets that met UPDC REIT’s requirements.In order to ensure that the target asset allocation is achieved, we will continue to seek additional investments in real estate or real estate related assets, in the next financial year”, the fund managers stated.
The units of the Trust can be bought and sold through a licensed stockbroker on the floor of the exchange.
The Trust generates revenues for unit holders by investing in various income generating activities which include rental income on investment property, trading real estate equity securities on the stock exchange and trading in government securities.
The primary objective of the Trust is to enable investors earn stable income while preserving capital over the long term. This is achieved by ensuring stable cash distributions from investments in a diversified portfolio of income–producing real estate property and to improve and maximize unit value through the ongoing management of the Trust’s assets, acquisitions and development of additional income-producing real estate property.
The real estate market was adversely affected by the economic recession as a number of new developments recorded slower take-up rate and rental income lowered, as tenants are requesting for a downward review of rent or a rent-free period.
“Despite the macroeconomic challenges, Novare Lekki Mall, Onitsha Mall and Maryland Mall were completed and opened to customers in 2016. There is currently an oversupply of grade A office space. In order to attract tenants, Landlords had to reduce rental rates. There was also a shift of the demand for office spaces from the oil and gas sector to management, consulting, technology, finance and other services sector,” UPDC REIT Fund Managers noted.