December 21, 2014

Research Note: Analysis of Nigeria’s Newest REIT

Dolapo Omidire

Here’s a short research note with a few thoughts on the new REIT, Haldane McCall Real Estate Investment Trust. Haldane McCall owns The Suru Group, a private limited company focused mainly on residential developments and the hospitality sector in Lagos. They have already commenced an initial public offering, which will be closing on the 14th of January next year.

IPO Background & Strategy

They are offering 2,600,000,000 units of N5.15 each valued at N13.39 billion and 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. Investment will be focused on 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.

Timing & Coverage

Timing for an IPO could be better, especially when we consider all the poor macro economic factors/indicators. The stock market has significantly underperformed this year and the outlook for next year isn’t great either. According to Bloomberg, the NGSE All Share Index has returned -24% YTD among the worst in Africa. With such a bearish market, it may have been wiser to postpone it.

HOWEVER, they may see their IPO as a preferred choice for investors given the current state of the economy. REITs are known to be great portfolio diversifiers and have much less volatility than your typical equity. But will that be applicable in the Nigerian REIT context? I’m also slightly disappointed at the coverage it has gotten. This isn’t just any IPO, it’s a REIT. They are only 3 listed on the Nigerian stock exchange 2 of which have performed relatively poorly while the other is just doing fine.

Why are they only holding 5%?

The Sponsor, Suru Worldwide Ventures Nigeria Limited, shall hold 5% of the REIT while 95% will be held by the investing public.

I was unable to see any reasoning in the prospectus. It could mean they are really keen on raising as much capital to acquire as much property as possible, and intend on buying their stock back later. This might not resonate well with investors. They will be holding on to N669.5m worth of equity, very small when you consider the other N12.72bn that  on the market. I think the UPDC REIT held up to 30%?

Yes, Paying 90% of income to investors is good

“A minimum of 90 percent of the income earned in any financial year will be distributed to unit holders every financial year.”

All REITs have to pay out at least 90% of their income. That’s actually one of the good things about REITs, they have huge tax benefits. It’s good for the corporates as they pass down their tax burden to the investor (they pay tax regardless) and it’s good for the investor cause it means higher yields.


As for their strategy, after reading the Suru Group’s website, they are keen on the middle income segment in a bid to support the Federal Government’s drive for affordable housing. There are more volumes at the lower end there and it could be lucrative. However, on the acquisitions side, there is a low stock of high quality property in Ikeja, meaning their portfolio could hold a lot of B Grade properties. This may have negative CAPEX implications in the long run.

I’m excited about the prospect of a new REIT and I really hope it goes well. It would be a real blow to the real estate sector if another REIT lists and ends up being unsuccessful.

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