Acorn has launched an investor roadshow for its Acorn Student Accommodation (ASA) REIT which seeks to establish a D-Reit and an I-Reit with a blended Internal Rate of Return of 18%.
The fund size of the two Reits is estimated at a total of Ksh. 8.1 billion. Acorn is seeking investors to put in a total 30% equity in the student accommodation D-Reit and up to 70% in the income-Reit.
The firm said it has already secured a Ksh. 1 billion equity investment into the Acorn REITs from its anchor investor InfraCo.
Incorporated in Mauritius, the holding company Acorning Holdings Limited owns a 100% stake in both Acorn Investment Management Ltd and Acorn Management Services Ltd responsible for management of the Reits.
Student enrollment in Kenyan Universities and Colleges has grown by almost 15% annually for the past 30 years while investment in student accommodation has not kept pace with the growth in.
Acorn is banking on a sizeable middle-income housing demand currently addressed by its Qwetu offerings.
“In 2020, the total addressable market size for Qwetu is 45,000 beds. With 2,300 operational beds, Qwetu accounts for only a 5% share of the addressable market, with no other institutional competitor in sight,” says Acorn.
Acorn also said its first lower-income student accommodation offering, Qejani, will be operational by 2022. The firm says this entirely untapped customer segment has a total addressable market of 69,014 beds based on SKP market research.
“Despite the challenging Capital Markets environment in Kenya over the last few years, the successful launch of our Corporate Green Bond demonstrated that the demand exists for well-structured asset-backed issuances. We expect this to grow as part of a general flight to quality and capital preservation by institutional investors,” the firm said.
REITs offer the most optimal vehicle for real estate investment in Kenya due to their tax efficiency, regulation and liquidity in comparison to traditional real estate.
The firm is looking to employ moderate to low leverage, with only 35% for its ASA Income-Reit and 60% for ASA D-Reit.
“The intention is to have the Acorn I-REIT unleveraged, therefore, it would not suffer any distress in the event of another occurrence of a pandemic,” says Acorn.
According to Acorn, the pandemic has reinforced the Resiliency of the PBSA Asset Class Globally and in Kenya, adding that most purpose-built student accommodation operators globally, including Acorn, will make a modest operating profit in 2020.
“Having run sensitivities in the financial model, a 12-month 100% vacancy due to a pandemic or a market challenge reduces IRR by 0.3% (over a 10 year holding period),” it says.
The company said it intends to list the I-REIT after three years, offering retail investors access to stable and consistent returns through participation in the country’s rental housing sector.