Real estate investment trust (REITs) ought to provide investors with opportunity to diversify their portfolio in funds of various property types, thereby lessening investment risk and volatility but in Nigeria, investors overlook these positive sides owing to unexciting performance of the REITs market.
The asset class is perceived as a ‘no-go area’ for profit-seeking investors considering the woeful market performance of publicly-listed REITs on the Nigerian Stock Exchange.
Analysis of the three listed REITs is highly bearish as the stocks depreciated on year-to-date, one-year return and five-year return.
UPDC REIT lost 18.18 percent in value year-to-date, the biggest among peers, compared with Skye Shelter Fund (-19 percent) and Union Homes (-9.96%), underperforming the All Share Index (ASI), which has wiped off 5.9 percent in value.
The stock performed abysmally poor in their one-year return, with UPDC bottoming with 46 percent decline, followed by Skye Shelter Fund down by 14.50 percent and Union Homes, which lost 9.96 percent in value.
Analysis of their five-year return gave a bearish picture. UPDC REIT lost a whopping 51 percent in value, trailed by Skye Shelter Fund down by 14.50 percent and Union Homes dropping by 14.48 percent, lagging the benchmark index that shed 24.83 percent in five years.
This therefore signals that the investors shy away from Nigerian listed-REITs because of their weak fundamentals, and most importantly, these corporates have not been posting enticing figures that could catch the interests of investors.
Union Homes REITs, which has released its 2018 scorecards, reported the lowest net asset value (NAV) of its portfolio in four years, buoyed by non-occupancy of key properties.
During the last financial year, two major properties of the Lagos-based fund manager were vacant due to major repairs on them, and this significantly weighed down on its operations given that rental income accounts for tangible cut in its investment income.
Despite decline in fund’s net asset value, the fund manager grew profit margin by 10 percent points to 65 percent in full year 2018.
Skye Shelter posted contraction in all its income segments in full year 2018. Interest income was down by 1.03 percent to N122.4 million in 2018 compared with N123.7 million in the previous year; rental income contracted 2.13 percent to N92 million in the review period.
Moreover, the firm earned no profit on disposal of investment property. This consequently lowered total income by 5.29 percent to N215 million in 2018 relative to N227 million earned in 2017.
The waned total income made net income shed some 9 percent to N152.8 million compared with N167.7 million in the previous year, and net income per unit shedding 8.2 percent to N7.64 in the review period from N8.32 in the year before.
UPDC failed to file its first-quarter, half-year and full year 2018 results with the Exchange, which is thing investors loathe as they need data to make informed decisions.
The current size of the Nigerian REIT sector is less than N50 billion through three-listed REITs that account for less than 0.5 percent of the NSE. In developed countries with more advanced capital markets, REITs account for 2.5 percent to 5 percent of the entire stock exchange.
Nigeria’s REIT market continues to lag behind peers unlike South Africa that has about 50 listed REITs, in which they among the top performing sectors on the Johannesburg Exchange.
Real estate investors have always complained that there are actually no REITs in Nigeria, what the country has is a unit trust scheme with trustees, in which taxation is passed down to the investor as if he owned the property himself.
“Our current structure allows rental income to be taxed somewhere along the value chain, thus reducing investors’ total return”, said Damilola Ijalade, broker with PWAN Homes.