December 10, 2014

New Nigerian REIT commences IPO

Dolapo Omidire

Haldane McCall Real Estate Investment Trust (HMK REIT) have begun an Initial Public Offering (IPO), which will close on January 14th, 2015. Haldane McCall owns The Suru Group, a private limited company focused mainly on residential developments and the hospitality sector. They are behind the Best Western Hotel Brand in Ikeja and other low-mid market hotels. They are not focused on prime grade real estate, but REITs typically have varied strategies and this could work for them.

They are offering 2,600,000,000 units of N5.15 each valued at N13.39 billion. The proceeds of the offer will be used principally for the acquisition of a diverse portfolio of residential and commercial properties located in GRA Ikeja, Ikeja Central Business district and Ikoyi respectively. They will invest in a portfolio of high quality residential and commercial real estate properties that are already generating income, other potential high yield real estate assets and money market instruments.

REITs usually avoid a big chunk of corporate taxes by paying out most of its income (typically 90%) through dividends. In return, REITs have their own tax rules which are passed down to investors (dividends are taxed as ordinary income).

A vague regulatory framework as well as a shortage of prime assets for purchase have meant the full potential of the REIT sector for the Nigerian real estate market has not been realised. Continued investment in and development of prime grade real estate, supported by infrastructural improvements in key nodes and of course a clearer and defined framework for the REIT sector, should begin to unlock the inherent potential. We definitely have the demographics and economic fundamentals to support an exceptional performance.

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