Route to Market for a Successful Reits Issuance: Case Study – Acorn Student Accomodation Reits

Authored by: Wangui Maranga-Okello, Executive Director, Acorn Holdings Limited

Since the Capital Markets (Real Estate Investment Trusts) (Collective Investment Schemes) Regulations were gazetted in 2013, there had only been one Income REIT issued in Kenya (the ILAM Fahari I-REIT), until February 2021.

In what was certainly a challenging environment; in the midst of the COVID-19 pandemic, Acorn Holdings Ltd successfully launched two REITs in February 2021; the world’s first Development REIT, the Acorn Student Accommodation D-REIT (ASA D-REIT), and the region’s second Income REIT, the Acorn Student Accommodation Income REIT (ASA I-REIT), at a total Net Asset Value of KES 7.6 billion. The REITs attracted both local and international capital from pension funds, insurance and reinsurance companies, high net worth individuals and anchor investor, Infraco Africa.

Despite the corporate failures in the recent years that slumped investor confidence in the capital markets, it is evident that demand exists for well-structured asset-backed securities, as was demonstrated first by Acorn’s issuance of Africa’s first green housing bond in October 2019, that raised KES 4.3 billion, and subsequently with the REITS issuance.

The ASA D-REIT is the investment vehicle that develops Purpose Built Student Accommodation (PBSA) properties from land acquisition to construction and completion. Once the assets have achieved stable occupancy, they are sold to the ASA I-REIT on a commercial arms-length basis, providing D-REIT investors with attractive capital gain returns.

The ASA I-REIT on the other hand, holds the income generating PBSA rental units on a long-term basis to give investors steady dividends and capital appreciation over time.

Acorn made a strategic decision to pool its assets into REITS vehicles for a number of reasons:

  1. Tax efficiency: This model of housing development projects in the D-REIT which are then sold to the I-REIT once completed and stabilised, provides a highly efficient structure for Acorn and 3rd party investors, with no tax friction between the D-REIT and the I-REIT, as provided in the regulations. The REITs assets do not suffer any capital gains tax or stamp duty on sale, nor do they incur any income tax or VAT.
  2. Funding from capital markets: Capital Markets provide an efficient mechanism for connecting entrepreneurs or businesses with capital from institutional investors and domestic savings. This is done through transparent investment vehicles that are regulated and professionally managed thereby giving investors protection, good returns and liquidity.
  3. Diversification: For the same amount of investment made in one building, investing in a REIT spreads one’s investment over multiple properties, tenants, locations and markets, providing long-term return stability and sustainability.


What can potential REITS issuers and investors learn from Acorn’s journey to the culmination of the REITS launch?

These were Acorn’s learnings:

  1. Strong sponsor: The REIT promotor requires vast in-house experience and expertise in real estate investments, complemented by a track record in operations and management.
  2. Sponsor stake: A significant investment in the REIT shows that the promotor has sufficient skin in the game to give investors comfort that their interests are aligned.
  3. Robust real estate platform: Acorn has deployed significant resources in its integrated real estate platform, which is necessary for its business model, providing end to end delivery capabilities for the group’s development management, property management and investment management operations.
  4. REIT management fees: To align investor interests with the REIT manager, the fee structure needs to be skewed towards performance. Investors prefer a low management fee to cover overhead costs, with a performance fee (also known as carried interest) that is earned above a stated preferred return.
  5. Deal pipeline: Access or control of high-quality deal pipeline of development projects or income generating properties gives investors visibility of future scale and return potential.
  6. Risk-return trade-off: REITs with investments in several good quality assets offer diversification and compelling risk-adjusted returns to investors.
  7. Listing on day 1: REITs need to build a track record of dividend/distribution pay-outs and achieve scale before listing. Without this, the market is likely to significantly discount its market value to NAV. It is for this reason that the two REITS will initially trade on the Unquoted Securities Platform at the Nairobi Securities Exchange until the two objectives of scale and dividend track record are achieved.
  8. Investment Policy: A REIT’s investment strategy and policy needs to be clear and specific with regards to the assets that are eligible to be invested in by the REIT. This could be in terms of sector, location, expected returns, size, occupancy levels, etc. This makes forecasting and valuation easier for an investor, thus making the REIT a more attractive investment option.


Acorn Holding Ltd.’s CEO, Edward Kirathe, aptly put it during the launch of the Acorn REITS in February 2021 when he said, “The Real Estate investment space is by and large an unregulated space and many Kenyans have fallen prey and sunk their hard-earned savings into Real Estate projects and investments promoted by sponsors who have no expertise or experience. They lure their targets using highly opaque investment vehicles with the promise of out-sized returns. As a result, the Real Estate landscape is littered with the wrecks of these entities that have taken down billions in savings that could have generated substantial wealth for Kenyans. The Capital Markets can be part of the solution, because, when they work well, they offer transparent investments that are regulated and professionally managed thereby giving investor’s protection, good returns and liquidity