Property developer Acorn Holdings Limited is creating a development real estate investment trust (D-Reit) through which it will sell part of its ownership in a group of branded student hostels it is building in Nairobi.
The company has already completed three hostels in Parklands, Ruaraka and along Jogoo Road. It plans to build six other projects in various locations including Nairobi West and Kasarani.
The properties are projected to cost a total of Sh7.6 billion, with Acorn planning the D-Reit to offload part of its interest to institutional investors and high-net-worth individuals.
“Acorn is in the process of structuring a D-Reit as the promoter. Acorn’s current development pipeline will be sold to the Development Reit,” the company said in disclosures to bond investors from whom it recently raised Sh5 billion.
“It is intended that the D-Reit will purchase the partnership interests of Acorn in the issuer (the basket of hostels). Acorn intends to retain a 30 percent stake in the proposed D-Reit.”
A D-Reit is an investment vehicle that is principally involved in development and construction of properties for sale and/or rental. It must have a minimum of seven investors.
According to Kenya’s securities regulations, promoters of such trusts can offer them only to professional investors who are to make minimum investments of Sh5 million each.
The investment threshold is aimed at locking out retail investors who may not have the knowledge or financial resources to stomach the potential risks in D-Reits such as illiquidity and volatility in the market value of the units or shares. Promoters of D-Reits are required to maintain an investment of at least 10 percent of the value of the fund as at the date of the issue of units for two years. Thereafter, a promoter may reduce its investment.