Goldbanc Management Associates Limited (GMA) is the lead issuing house and lead arranger for the Haldane McCall Real Estate Investment Trust’s (HMK REIT) ongoing initial public offering (IPO). In this interview, Olu Abayomi Sanya, managing director, GMA, discloses that the HMK REIT has been structured to succeed more than the ordinary equities in the market, pay consistent dividend and it is not affected by fluctuations in the market, among other benefits for investors. Excerpt:
What is your role in the arrangement and structure of this offer?
Goldbanc Management Associates Limited (GMA) is the lead issuing house and lead arranger for the HMK REIT. Our role as the lead arranger and issuing house is to structure, package and deliver the HMK REIT to the marketplace. While structuring, GMA is to ensure that all relevant professional parties are engaged for the REIT and necessary enhancements are put in place for an infallible structure. Of importance also is to ensure that corporate governance principles are put in place to ensure transparency in order for would-be investors to look at and find that the structure meets global standards.
Why should investors, for instance, pension fund managers, invest in this?
The HMK REIT is structured to meet all investor criteria and preferences. It follows corporate governance principles. The investment committee formally constituted as the oversight investment decision making body alongside the fund manager, you also have the trustee who represents the investors and makes sure the trust deed which is the constitution, of the HMK REIT is followed through. The investment committee members are well versed in investment and real estate. The committee will put their wealth of experience together to make sure that the HMK REIT succeeds more than the ordinary equities in the market.
Secondly, with regard to risk, mitigants have been put in place to ensure that risks are curtailed to the barest minimum. Two leading insurance firms in Nigeria – Leadway Assurance and Custodian and Allied Insurance have been selected to insure the risks that may arise on the assets. In addition to the insurance of the assets, there is also a guarantee of the expected rental income on the assets. The guarantee assures 16.40 percent of the rental income, peradventure rental income collected on the properties falls below 60 percent. In effect, investors are assured of receiving dividend every year.
Thirdly, the HMK REIT has been assigned an investment grade rating of ‘BBB’ by Global Credit Rating of South Africa. This rating qualifies the HMK REIT for investment by Pension Fund Administrator (PFAs), life insurance organisations, foundations, trustees, investible funds in insurance companies, etc.
If you compare all the equities in terms of dividend for the last one year, they have paid between 2 percentto 5 percent, except for Custodian and Allied that paid about 7 percent dividend yield. HMK REIT plans to pay in year one a minimum of 7.65 percent dividend yield. This is because it is mandatory for REITs to pay 90 percent of the net annual income. Investors might say the Federal Government bonds pay about 13 percent or thereabout, it is not efficient or wise to have only an array of FGN Bonds in a portfolio as a fund/portfolio manager. There is a need to diversify because anything can happen. Just as the price of crude oil is sliding down anything can happen in the bond market. Strategically balancing the portfolio with an instrument like the HMK REIT saves portfolio managers investment loss, should there be a shock. It is not always good to invest in a single asset class or instrument. This kind of issue is one of the ways to balance your portfolio.
Another advantage of investing in an instrument like this is that it is not affected by fluctuations in the market. That is, whether the market moves up or down, it is consistent. The Net Asset Value (NAV) of this instrument is more important than the market price. From experience, the Net Asset Value of REITs is usually higher than the market price. For us, HMK REIT is a good asset and it is what everyone should invest in.
The other aspect in which I need to let you know is that the real estate is really real. You can identify and point to properties that you have invested on.
What is the attraction that will motivate people buy at this time of a fall in the market?
When new IPOs or right issues are opened in the market, it is the company’s fundamentals that will judge if the offers will be successful or not. Also, when it comes to dividend, it is the board that decides what they give to investors and it is left to the board’s discretion. However, the unique feature about the HMK REIT is that you don’t have an opaque way of deciding what should be shared to each investor rather it is mandatory to pay 90 percent of income earned. The good thing is that you are certain that rent will be paid and your dividend is guaranteed. So, if you have an investible fund, it is good to invest it in an instrument where you will get returns.
Who can invest, and what does it offer an investor as the government is experiencing shortfall in cash inflow?
This is an investment that cuts across all investment classes, and not just high net worth investors. From my experience of the Union Homes REIT, the retail investors will always ask you when the next REIT will be floated because of the consistent stream of income they enjoy. The same classes of people took advantage when UDPC REIT came up as well. This is because while the market was down and no stock was paying dividend, Union Homes REIT kept paying dividend.
In a particular year N4 per unit was paid when nothing was coming from any company, likewise the UPDC REIT just declared an interim dividend. So, investors clamour for it. Same goes for HMK REIT, dividend is guaranteed for all and sundry investors. Even if government expenditure nosedives and there is austerity measure, the real estate will still be vibrant since the rent is still there. Except the austerity measure will affect everybody in such a way that they will go out from their houses and begin to live on the streets. However, these properties are medium and highbrow properties and have high-worth clients as tenants, rent is guaranteed. The underlining asset of the assets is the tenant.
An instrument like the HMK REIT will help to bridge the housing gap that exists in the system. What the REIT does is that it takes money from the system and gives back to the people who own these properties to go and build more properties at a cheaper and better rate. The REIT helps to unlock funds from assets for further onward development of properties,
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