Cytonn lines up first publicly funded debt issue
Investor manager Cytonn has sought approval from the Capital Markets Authority (CMA) to register its first Development Real Estate Investment Trust (D-REIT).
The approval will see the company seek out a projected Ksh.2 billion from the public with acquired funds being deployed in the construction of the first phases of two real estate projects in Kiambu’s Ridgeways and Ruiru.
The proposal which sits against the firm’s traditional private capital raising schemes is aligned to Cytonn’s ongoing funding diversification which incorporates in part cheaper financing sources.
“Cytonn has traditionally relied on private sector funding, which while easier to access, has been more expensive. This has thus necessitated the development of alternative sources of funding, allowing development of institutional-grade real estate at a relatively lower cost, thus maximizing the returns to investors,” noted the company in a statement.
The company first switched over from investor and shareholder funding in March this year by taking out a Ksh.650 million credit line with the State Bank of Mauritius (SBM) which served to trigger the fast tracking of the Alma, a Ksh.3.5 billion residential development in Ruaka.
Cytonn’s investment in the new D-REIT facility comes at an opportune time when the government has relaxed barriers to investor entry with view to boost participation in the income producing real estate investment vehicle.
In his proposal to Parliament, former Treasury Cabinet Secretary Henry Rotich proposed to exempt REITS from paying income tax in a suggestion that has been carried forward as part of the 2019 Finance Bill.
REITS/D-REITS are described as regulated investment vehicle which enable collective investments in real estate, where investors pool their funds and invest in a trust with the intention of earning profits or income.
If successful, the planned D-REIT will serve to free up funding pressure on the wealth management firm which in October of 2018 announced the sale of a 20 percent stake to Finland based Taaleri Group upon its public listing.
Like other real estate based investment firms, Cytonn has been caught up in the recent sector slowdown defined in subdued property valuations, the over-supply of units and tightening financing conditions.
The company has for instance begun picking on one project at a time with a means to mitigate against risks including the in-completion of projects.
The firm who in the most recent acquired a REIT license from the CMA will see an appraisal of its credit rating which is primarily set on the ability to encompass multiple funding sources.
Nevertheless, Cytonn is not expected to list the REIT at the Nairobi Securities Exchange (NSE) in the interim, prolonging the drought on the NSE’s real estate trust counter which currently only features the 2015 listing of the Stanlib Fahari i-REIT.