In a recent announcement, ICEA Lion Asset Management Limited’s decision to restructure ILAM Fahari I-REIT has prompted discussion and scrutiny of the due diligence carried out before ICEA’s acquisition of the property fund in mid-2020.
Non-professional retail investors who declined to sell their units back to the property fund’s manager now face an automatic buyout after three years. This situation has arisen subsequent to the closure of the offer and the delisting of the REIT from the Nairobi Securities Exchange, effectively providing investors with limited choices.
Einstein Kihanda, CEO of ICEA Lion Asset Management, addressed concerns regarding the restructuring and the timing of ICEA’s acquisition. Kihanda pointed out that they assumed management of the REIT at the height of the Covid-19 pandemic, which significantly affected the underlying properties’ performance. Negotiating with tenants and coping with financial challenges, particularly those faced by the anchor tenant at Greenspan Mall, had a substantial impact on the REIT’s valuation.
The restructuring also raises questions about a previous write-down that mirrored market realities, with the pandemic and financial issues at Tuskys, the mall’s anchor tenant at the time, significantly influencing the valuation write-down and complicating the REIT’s performance.
A notable development mentioned is the proposal to exit the Nairobi Securities Exchange’s main market and join the Unquoted Securities Platform. This move suggests a shift in ICEA Lion’s perception of the market, indicating that it may not be sufficiently sophisticated for the REIT market. This points to the challenges the REIT faced during its initial listing in 2015 when it failed to achieve the critical mass necessary for a successful launch.
ICEA Lion offers a premium of 83.0 percent for the redemption of ongoing units, reflecting their perspective on the unit’s market performance. The premium is calculated using various methodologies, such as the dividend discount model and Net Asset Value (NAV), to make the buyout more appealing to investors. Furthermore, there’s a possibility of disposing of non-core assets, demonstrating ICEA Lion’s commitment to optimizing the REIT’s portfolio, which comprises both well-performing and underperforming assets, necessitating a strategic portfolio review.
The restructuring of ILAM Fahari I-REIT and ICEA Lion Asset Management’s management of the REIT have raised legitimate concerns. It underscores the challenges the REIT has encountered due to the pandemic and other market dynamics. The future of the REIT market and the performance of individual assets within the industry remain uncertain, demanding vigilance from investors.
