Fusion Capital has launched a Sh2.3bn offer for the first Development Real Estate Investment Trust (D-REIT) on the Nairobi Securities Exchange (NSE), to finance and complete the development of Greenwood City.

Fusion Real Estate Development Trust (FRED-Commercial) will issue 100 million units going on sale at Sh23 each.

Greenwood City is an upscale, high potential development in Meru, Meru County, which comprises a shopping mall, an upscale office block and apartments.

Meru is ranked as the seventh most populated county in Kenya and has an urban population of 75,000 people and growing at average rate of 15% per annum.

The overall total project size is Sh3.7bn.

 Luke Kinoti, Fusion Capital Group CEO, said: “The Sh2.3bn we are raising in this offer will be 100% committed to Greenwood City.  In the future, FRED may raise additional funds for further development opportunities subject to unit holder consent.”

 “We expect that the product will be well received in the market. D-REIT’s are a revolutionary product for the Kenyan market. D- REIT’s give professional investors access to development returns via a tax-efficient listed vehicle,” he told Africa Global Funds.

 “Greenwood City is a very attractive, significantly de-risked development project. The buildings are already 21% constructed, and the project team has already secured tenants for 20% of its retail space, and pre sold 33% of its residential component,” he added.

 It is expected that the project will take in total 36 months to develop and achieve a full exit.

 Based on these assumptions, the projected return is an IRR of 20.28% and a return on equity (RoE) of 54.34%.

 Upon exit, FRED-Commercial will use these proceeds to take on further projects of similar dynamics and make great return for unit holders.

Kinoti said that in comparison to an I-REIT (income REIT), a D-REIT is a development REIT.

“A D-REIT actually develops the building (s), making a development profit from doing so. Whilst it may collect rents as well, the bulk of its profits should come from the value created by turning a bare patch of ground into a vibrant functioning building,” he explained.

Investors in a D-REIT are considered ‘professional type’ investors defined by the Kenya regulations, which require a minimum individual investment of Sh5m.

A D-REIT is a listed collective investment instrument that allows investors to pull capital to develop large scale real estate units.

Investors benefit from capital appreciation during the listing and construction window.

The units in the REIT are traded on the NSE like any other listed security.

Investors can also realize capital gains on exit through sale of the property.

 In the case of Greenwood City, the asset will be sold at a yield in September next year.

The D-REIT is a closed-ended fund, which means investors can only exit through the secondary market at the NSE.

Buoyed by sustained demand for residential, commercial and other stock, Kenya’s property market has been on an upward trajectory for over a decade now.

FRED-Commercial would give investors a chance to invest in Kenya’s growing property market through a strictly regulated and listed asset class.

Listing would help in price discovery and engender liquidity, while giving investors a window to exit and enter.

Kinoti said that D-REITs are a brand new product in Kenya.

“The Kenya Capital Markets Authority introduced D-REIT’s as an asset class in 2013. Fusion Capital is simply the first company to launch a D-REIT, but we expect many more to follow, he said.

The Sh2.3bn offer will close on July 15.

Applications for subscription will then go through an allotment process with a subsequent listing of units on the NSE on July 28.