September 7, 2015

NSIA 2014 Annual Report – The Real Estate Overview

Dolapo Omidire

In late August, the Nigerian Sovereign Investment Authority (NSIA) released the complete financial report for the year ending December 2014. The year ended with net comprehensive income of ₦15.8 billion, up from the ₦525 million recorded in the previous Annual Report for the 15-month period ending 31 December, 2013. Their milestones for 2014 are shown in the image below.

2014 Milestone. Source: NSIA Annual Report

The report explained that the income was largely driven by the performance of investments made in the Future Generations Fund (FGF), Nigerian Infrastructure Fund (NIF) and capital deployment along the lines of its 2013 asset allocation model.

The three funds created by the NSIA have the shared goal of building a savings base for the Nigerian people, enhancing the development of Nigerian infrastructure and providing stabilisation support in times of economic stress. The allocation of capital is split 40%, 40% and 20% across the Nigerian Infrastructure Fund, Stabilisation Fund and Future Development Fund respectively.

NSIA Fund Allocations
NSIA Fund Allocations

Various existing and prospective investments into the real estate sector have been stated in the report and ei has outlined them below.

NIF and Real Estate

The Nigerian Infrastructure Fund will be the largest real estate investor of the three funds created. However, this fund will also invest in other sectors including Agriculture, Healthcare, Power, Motorways and more.

NIF Target Sectors. Source: NSIA 2014 Annual Report

According to the report, the NSIA has been active in appraising investment opportunities across the affordable and mass housing, commercial and hospitality real estate segments. In July 2014, NSIA signed a Memorandum of Understanding (MoU) with Eagle Hills, a sovereign investment entity of the government of Abu Dhabi, led by Mohamed Alabbar, Founder and Chairman of the Emaar Group. Pursuant to the MoU, NSIA and Eagle Hills entered into a Joint Venture agreement to co-develop Phase One of the Abuja Centenary City development. This consists of serviced and residential apartments, offices, luxury villas and the Address Hotel (an Emaar branded five-star hotel, which will be integrated with retail space). Though there has been some controversy surrounding the legitimacy and ownership of the Centenary City project over the past weeks, Buhari gave his endorsement of the project through a statement by Garba Shehu, his Senior Special Assistant on Media and Publicity. Successive investments into the real estate sector may be achieved through development or acquisition, however development is typically the riskier option so the NSIA may opt for already existing income producing assets.

The NSIA also restated their interest in the affordable and mass housing segment. They have forged strategic partnerships with public and private institutions for the development of commercially viable housing real estate projects and intend on incorporating new technology and construction standards for the delivery of high quality, affordable housing products.

Aside from investing and setting up the Nigeria Mortgage Refinance Company (NMRC) in 2013, the NSIA also initiated several major projects in 2014 including co-development of the Second Niger Bridge through a Public-Private Partnership (PPP). Separately, in the process of developing infrastructure financing options, NSIA’s Management identified a gap in credit enhancement which it considered pivotal for improving the liquidity of infrastructure bonds by enabling participation from pension funds and insurance companies.

FGF and Real Estate

The Future Generations Fund has a 25% private equity allocation. Within this allocation, primary commitments were made to three managers totaling approximately 28.4% of the targeted allocation. A portfolio of private equity interests was also acquired in the secondary market and the principal invested represented 47.5% of the allocation. Given the mature stage of these interests, the FGF will accrue continuous cash flows from these investments over the next few years.

Future Generations Fund Allocation. Source: NSIA 2014 Annual Report

By the financial year end, the revaluation of these interests resulted in a gain of 23.59%. Beyond this, two commitments were made to a manager in each of the Commodities and Other Diversifiers components, while additions have not yet been made to the Hard Assets portion. In our analysis of the 2013 Annual report, we argued that FGF would be investing in Non Nigerian REITs as they were using the FTSE EPRA/NAREIT Developed Index as their benchmark for half of their hard asset allocation. This index was designed to measure the stock performance of companies engaged in specific real estate activities in mature investment markets, where relevant real estate activities include the ownership, trading and development of income-producing real estate. However, the NSIA explained that the decision was taken to increase the allocation weighting to Other Diversifiers from 5% to 10%, while reducing Hard Assets from 10% to 5% because of the comparative opportunity in the market.

As each report is released, the NSIA has sustained their keen interest in investing in the Nigerian property sector. Aside their initial investment in the NMRC, the local property market is eager to see what their flagship investment into built property sector will be.

Read the report here.

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