Real Estate Investment Trusts (REITs) are investment vehicles that allow individuals to invest in a diversified portfolio of real estate assets without having to directly own, manage, or finance properties. In Nigeria, REITs are a relatively new concept but have been gaining popularity as a viable investment method in real estate.
In 2023, the Nigerian Real Estate Investment Trusts (REIT) recorded a total rental income of ₦2.16 billion, this was a 12% increase from the ₦1.93 billion recorded in 2022.
How REITs Work
REITs are companies that own, operate, or finance income-producing real estate. They pool together funds from multiple investors to purchase properties or real estate-related assets. Investors earn returns through dividends from rental income and capital appreciation of the properties.
Types of REITs in Nigeria
- Equity REITs: These REITs invest in and own physical properties. Their revenue primarily comes from leasing space and collecting rents on the properties they acquire.
- Mortgage REITs: These REITs invest in real estate mortgages or mortgage-backed securities. They earn income from the interest on these financial instruments.
- Hybrid REITs: These combine the investment strategies of both equity and mortgage REITs, investing in both physical properties and mortgage loans.
Benefits of Investing in REITs
Diversification: REITs allow investors to diversify their portfolios by including real estate, which often behaves differently from stocks and bonds.
Liquidity: Unlike direct real estate investments, REITs are traded on the Nigerian Stock Exchange market just like stocks. You can buy or sell REITs through your stockbroker as with other types of shares
Stable cash flow through dividends: REITs typically pay regular dividends to investors, derived from rental income and other profits from the properties they own.
Challenges and Risks
Market Volatility: Like all investments traded on stock exchanges, REITs are subject to market volatility, which can affect their value.
Regulatory Risks: Changes in government policies, regulations, or tax laws can impact the performance of REITs.
Economic Factors: The performance of REITs is closely linked to the current state of the real estate market and the overall economy. A decline in the economy can negatively affect the rental income and property values.
Currently there are only equity REITs in Nigeria and they include: SFS, UH and UPDC Real Estate investment Trust (REITs)
REITs in Nigeria
SFS Real Estate Investment Trust (SFSREIT)
SFS Real Estate Investment Trust is a closed-ended scheme in Nigeria, pooling funds primarily to invest in income-generating real estate. The investment activities of the fund are managed by SFS Capital Nigeria Limited, with Apel Capital and Trust Limited serving as the Trustees.
The REIT invests in a diverse range of properties, including residential apartments, office blocks, shopping malls, and warehouses. The Fund commenced through an Initial Public Offer of 20 million units at ₦100.00 each on 23 July 2007. It was officially listed on the Nigerian Stock Exchange on 28 February 2008 at ₦100.00 per unit.
Skye Shelter Fund is currently the 116th most traded stock on the Nigerian Stock Exchange. SFSREIT has traded a total volume of 797,914 shares in 419 deals valued at ₦85 million over the period, with an average of 12,665 traded shares per session. It has a market capitalization of approximately ₦2 billion, while the current share price is ₦101.40.
According to the Q1 2024 financial report released by SFS, SFSREITs portfolio includes properties in:
- Victory Park Estate Lekki
- Sapphire Gardens Awoyaya
- Bourdillon Court Lekki
- Milverton Lekki
- Cromwell Estate
- Maben Estate
- Victoria Crest Estate
UH Real Estate Investment Trust (UHOMREIT)
UH Real Estate Investment Trust is a close-ended Unit Trust Scheme listed on the Nigeria Stock Exchange (NSX). The fund is primarily involved in acquiring investment properties which are held for capital appreciation. It was incorporated under Nigeria laws and commenced business on February 3rd, 2009.
It’s a hybrid REIT which provides Unit Holders access to investments in approved portfolio. It is governed by a Trust Deed approved by the Securities and Exchange Commission and managed by SFS Capital Nigeria Limited
UHOMREIT is currently the 83rd most valuable stock on the NGX with a market capitalization of approximately ₦9 billion and a share price of Union Homes Real Estate Investment ₦36.60. UHOMREIT has traded a total volume of 55,293 shares in 31 deals, which are valued at ₦1.94 million over the period, with an average of 878 traded shares per session.
According to the Q1 2024 financial report released UHOMREIT’s portfolio includes properties in:
Macdonald, Ikoyi
Sapara Williams, Ikoyi
Olusegun Aina
Mike Akhigbe, Abuja
Sinari Daranijo
Parkview, Ikoyi
Rumens, Ikoyi
Michael Olawale
Apo Dutse, Abuja
Victoria crest V Estate
Additionally, it also has investment in FGN Sukuk
UPDC Real Estate Investment Trust (UPDC REIT)
The UPDC Real Estate Investment Trust established on June 6, 2013, is a closed-ended Real Estate Investment Trust listed on the Nigerian Exchange (NGX). The units of the Trust can be bought and sold through a licensed stockbroker on the floor of the NGX.
The Trust’s main objective is to enable investors to earn a stable income while preserving capital long-term. This is achieved by ensuring stable cash distributions from investments in a diversified portfolio of income-producing real estate properties and by improving and maximizing unit value through the ongoing management of the Trust’s assets, as well as the acquisition and development of additional income-producing real estate properties.
UPDC Real Estate Investment Trust is the 63rd most traded stock on the Nigerian Stock Exchange with a market capitalization of ₦12.8 billion and a share price of ₦4.80. UPDCREIT has traded a total volume of ₦43.1 million shares in 2,247 deals valued at ₦198 million over the period, with an average of 683,894 traded shares per session.
According to the financial report released UPDCREIT’s portfolio includes properties in:
Abebe Court, Ikoyi, Lagos
VMP I, Victoria Island, Lagos
VMP II, Victoria Island
UAC Commercial Complex, Abuja, FCT Abuja
Pearl Hostel, Ibeju Lekki, Lagos
Kingsway Building, Marina, Lagos
Project Stack, Lagos
Conclusion
Investing in REITs in Nigeria offers a way for individuals to gain exposure to the real estate market without the complexities and capital requirements of direct property ownership. With the benefits of diversification, liquidity, and professional management, REITs can be a valuable addition to an investment portfolio. However, potential investors should be aware of the risks and conduct thorough research before investing.
Read more articles like this on our insights page www.buyletlive.com. You can also send us your comments, feedback, and contributions to research@buyletlive.com