As a professional stock broker what’s your take on UPDC’s REIT Programme?
REITs is a real Estate Investment Trust Scheme, it is one of the financial instruments that we would call collective investment scheme. Basically we have other collective investment schemes such as unit trust, investment trust and so on. Real estate investment trust is one of the instruments for that collective trust scheme, but the striking difference is that it is very unique in the sense that what we use it for is enabling the unit holders to partake in real estate property and landed property as the case may be, so the underlining assets for this real estate investment trust scheme is a landed property. It is one of the instruments that help an individual hedge against inflation, you are very certain to get your regular cash flow as far as the instrument is concerned.
So because of our strong belief in the scheme, we are promoting the N30 billion, UPDC Real Estate Investment Trust (“UPDC REIT”). The offer is one of the strategic initiatives being taken by the company in line with its growth aspirations and also in a bid to deepen the Nigerian REIT market.
Three billion units of the UPDC REIT are now being offered to the public at the par value of N10 per unit, with a minimum investment of 10,000 units (i.e. N100,000). BGL and Stanbic IBTC Bank PLC are acting as Lead Issuing House and Co-Issuing House respectively to the Offer, which opened to the public on Tuesday, 19 February 2013 and closes on Thursday, 28 March 2013.
The UPDC REIT is a close-ended Trust, authorised and registered with the Securities and Exchange Commission as a Collective Investment Scheme. The primary objective of the UPDC REIT is to provide Unit-holders with stable cash distribution from investment in a diversified portfolio of real estate properties. It is intended that at least 90 percent of the REIT’s income will be distributed to Unit-holders. The REIT will invest a minimum of 75 percent in Real Estate. A maximum of 25 percent may be invested in Real Estate Related Assets with no more than 10 percent held in liquid assets. The REIT will be listed on the main board of The Nigerian Stock Exchange and its units will be traded, thereby providing liquidity for Unit-holders.
What informed your decision to create this product, is there a market that you are trying to fill?
Yes you can say so, let us look at Nigeria’s housing deficit, you find out that we have a 16 million unit housing deficit in the country at the moment, which is not encouraging at all. Now if you also take a critical look at where some people are living, you will also weep out of pity for them, most especially, when you pay a visit to some ghettos, you would wonder if indeed human beings are the ones living there. Seeing this, we decided to embark on this plan to strategically help in feeling this gaping vacuum of housing deficit plaguing the nation, by giving Nigerians a good deal.
It is not what the Federal Government alone can do, it is pertinent that private organisations like us come in to this sector, and assist to solve this nagging problem and one of the ways to do it is when government encourages all these developers, property companies and in doing that, it must be known that you cannot use short term funds to actually fund this housing projects. What a developer or an organisation needs to do is to use long term funds/capital to do this. In doing this,the best option is going to the capital market and ensuring that investors actually come for this investment, that is why we are raising this type of REITs in the market, and that is why we are partnering UPDC, which is a well known company in the housing sector in Nigeria, as you may well know, they are into property development in Nigeria and are the largest property developers in the country. When you mention the best in the country, what first comes to mind is UPDC, so partnering them simply shows how serious we are in helping to solve the housing problem in the country. They have been quoted on the Nigerian Stock Exchange since they commenced operations, in 1997, and since then they have been doing very well. Consistently, they have been declaring dividend and there is no year, they have fallen short on that.
Looking at the REITs, that they are currently issuing now, tells you that what they are trying to do is to have developed properties that they would transfer to investors that would be investing in this Real Estate Investment Trust Scheme. What they would do is transfer these assets to them and allow them to be used for further development and from the document that we have, 40 percent of those funds that they would be raising through this REITs, the sponsors UPDC will get, while 60 percent would go to other investors. The reason why UPDC is going by it this way, holding 40 percent, while 60 percent will go to investors, is because of the strong confidence they have in this process. The properties we are talking about already exist; all they want to do now is transfer them, the properties are those you will find everywhere Golden Tulip, Victoria Plaza, if you go to Bishop Aboyade Cole, you will find it there, also Abebe Court in Ikoyi, we also have other ones in Abuja, which is the UAC complex. The unique thing about all these things is that the properties are already on ground, the only thing is that they have to first of all raise the funds before getting the properties. So these people already have the properties, what will now happen is that whoever is investing in it will start reaping the cash flow right from the word go, on their investment.
Prior to this time, there has being a lot of outcry by Nigerians that the majority of housing schemes similar to this, don’t usually have the lower classes in mind?
What the UPDC has done well in the past with its scheme, is ensuring that all classes benefit from this scheme, the top end, the middle class and the lower class, they have all this put in place, as they have properties in various categories. What they do is that, they develop what suits all classes, one bedroom flats, two bedroom flats and three bedroom flats, something they can all easily afford. If you go to Abuja, you will find a lot of them, they have factored all that out already with structured prices for all. UPDC has done several schemes like this before with government, but this time around, they want to be able to use the funds to develop more houses that meet the needs of all. But the one they are putting out is already being developed, so the properties are there, it is just for the fund managers, who will manage it in trust for the investors after which, they transfer this property to the REITs so that the participants can benefit from it.
Investing in the UPDC REIT provides an opportunity for individual and institutional investors to invest in a diversified portfolio of real estate properties and participate in the income distribution derivable from the portfolio of real estate assets. Investors will benefit from the superior quality of the real estate portfolio to be vested in the UPDC REIT as well as highly competent members of the investment committee, comprising seasoned real estate experts with a wealth of experience spanning decades. Investment in the UPDC REIT will assure stable returns as the UPDC REIT properties are strategically located and have historically enjoyed well over 95 percent occupancy rate from a base of high quality corporate and individual clients.
What is BGL’s role in REITs?
As stock brokers, our number one role would be to enlighten potential investors on what they stand to gain from the scheme. Let me put it like this, you know before now, people never really knew much the REITs, for example, people did not benefit from the ones that came before now, simply because they did not understand how it is structured, a lot of people misunderstand it as a form of collection. REITs means an individual will have a large pool of funds where they can make use of it for this purpose. People can invest as low as N100,000 in it.
This is the right time to come into the market; of course, things have been looking up in the market and it is wise for us to come in at this time. UPDC is looking at some huge projects at this time, and will use these funds to actualise the projects.
“We have projects in Abuja, Lagos, and all these are existing assets. Of course, investors know that UPDC is a company that has been around for a long time. So, we are confident that they will subscribe to the offer. Also, it is important to note that this offer presents an opportunity for investors who are looking to diversify their portfolio from the normal bonds and equities on the NSE; so, we are sure of high level patronage.
Investors in the REIT were expected to enjoy benefits, including immediate investment income, stable and regular distribution and exposure to a diversified property portfolio of income generating assets.
The target investors for the offer, which opens on February 19, and closes on March 28, 2013, are insurance companies, pension funds, assets/fund managers, co-operatives investment clubs, as well as high networth retail investors. So our role in all of this is to educate people about what they will benefit from the scheme. We meet with willing potential investors on a daily basis, so letting them know what is best for them is key for their growth, that is why we would be engaging to go for the REITs, which would be immensely beneficial. We are also going to be liaising with the regulators to ensure that the offer is successful, it should also be noted that as stockbrokers, we would also be helping to sell the stocks, should in case the investor wants to sell the stock for whatsoever reason. Forums have also been organised in key states Lagos, Abuja, Port Harcourt and other states of the country, where they would be educated on the benefits for them.
Do you think this is a way forward for the housing deficit, how much impact do you think this would have in reducing the deficit?
I must tell you, this is one of the key ways of reducing housing deficit a great deal. By this way we can develop affordable housing for Nigerians, then we can see that in the next ten years the objective of homes for all, would have been achieved. So you can imagine, we say we have 16 million deficit, by the time we develop in Abuja, Lagos, Ogun State, Ibadan and all part of the country, before you know it, the huge deficit would have been met.
As you would understand, a lot of people are apprehensive and skeptical of any IPOs given their past experiences, what would you say to them?
UPDC REITs comes at a time when investors are yearning for a favourable alternative means to invest in, as a matter of fact; we do need other instruments that can deliver valuable returns while comfortably hedging against loss or depreciation in value of investment. There is really no need to be apprehensive or skeptical; it is our duty to educate people on how to make their money work for them, bringing good value and returns. As a matter of fact the market is bouncing back and really needs a viable instrument like now with better sophistication. Things are better now and most importantly, there are alternative instruments like the REITs, which the market really needs that can guarantee good returns. When there is a setback in the market, it doesn’t mean people should desert the market totally. Things are better now, I tell you, this same market people are running from is what the same market people have made great fortunes out of. There are stocks people would have bought for very minimal value, but now they making as much as 70 percent returns on it. I tell you, there is no government bond on which an investor can make that much, if you look at WAPIC also. For example, I remember when we were begging people to go and buy UBA stocks, which was N4 at the beginning of the year and people were very skeptical, now it is trading at N8, Oando also moved up to N15 from N13and I remember begging people to invest in Oando, the stocks would even go up to N20 soon. Investors should learn not to underestimate any stock out of fear at all. People we compelled to come to the market, who then refused out of fear are regretting that they did not make the move now. They are certain P.E ratios used in analysing stocks and that is what we are putting in place now. What we do now, having in mind that the market is dynamic, is critically analyse the stocks, with the needed advice. Another is that we place premium on KYC (Know your customer) which ensures that investors are kept abreast of their stocks and don’t fall into troubled waters.
BusinessDay’s deputy Editor, (Commercial) JOHN OSADOLOR and BIODUN COKER spoke to Sunday Peter Adebola, managing director BGL Securities, on its role in making UPDC’s N30 billion REITS a reality. Excerpts.
