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TRANSCRIPT
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20th JUNE 2016
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Fusion Real Estate Development Trust - Commercial
OFFERING MEMORANDUM20TH JUNE 2016
In respect of The Public Offer of 100,000,000 Fusion Real Estate Development Trust - Commercial (FRED -
COMMERCIAL) REIT Units at an Offer Price of KES 23.00 per Unit as promoted by Fusion Capital Limited.
In making your decision to invest in REIT Securities you should be aware that there is no recourse to the assets of the Issuer or the Trustee.
The investment in REIT Securities is an equity investment and as a REIT Securities Holder in the REIT you invest as an equity investor. Distributions and return of capital are not guaranteed and are dependent on the performance of the assets of the REIT.
Should the Trustee exercise its authority to borrow on behalf of the Trust then Unit Holders rights to distributions and to the assets will rank after the payments to creditors.
The Trustee, REIT Manager and other parties are also entitled to receive payment of fees and expenses ahead of payments to REIT Securities Holders who invest in REIT Securities.
This Offering Memorandum is issued in compliance with all applicable laws including the Capital Markets Act (Cap 485A) and the Nairobi Securities Exchange Listing Manual.
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PROMOTER REIT MANAGER
REIT TRUSTEE LEAD TRANSACTION ADVISOR
TAX CONSULTANT LEGAL ADVISOR
REPORTING ACCOUNTANT REGISTRAR
PROPERTY MANAGER PROPERTY VALUER
LEAD SPONSORING BROKER RECEIVING BANK
NGOTHO PROPERTY CONSULTANTS LTD
AGE QUOD BENE AGIS
ARBITRATION ADJUDICATION D B VALUATION
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THIS DOCUMENT IS IMPORTANT FOR CONSIDERING WHAT ACTION TO TAKE AND REQUIRES YOUR CAREFUL ATTENTION AS IT INCLUDES LEGAL, MARKET AS WELL AS HISTORICAL, CURRENT AND FUTURE FINANCIAL INFORMATION.
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1. IMPORTANT NOTICE 10
2. DECLARATIONS 11
3. CORPORATE INFORMATION OF THE MAIN PARTIES 123.1 The Promoter 123.2 The Trustee 123.3 The REIT Manager 13
4. CONSULTANTS AND ADVISORS TO THE TRANSACTION 14
5. DEFINITIONS AND INTERPRETATIONS 16
6. GLOSSARY OF ABBREVIATIONS 19
7. FREQUENTLY ASKED QUESTIONS 20
8. KEY FEATURES OF THE OFFER 218.1 REITStructure,KeyPartiesandflowoffunds 258.2 The Offer 278.3 Reasons for the Offer 278.4 Timetable of Principal Events 278.5 MinimumSubscriptionandApplicationSize 278.6 Underwriting 278.7 Basis of REIT Units’ Initial Price 27
9. ELIGIBLE ASSETS OF THE TRUST AND ACTIVITIES OF THE SCHEME 289.1 Eligible and permitted assets of the REIT 289.2 AssetstobevestedintheTrust 289.3 Initial development and construction of the REIT 299.4 Strategy of the REIT Manager in implementing the objectives 299.5 Permittednon-realestateassetsandrestrictionson investment and REIT Manager’s strategy as regards such investment 299.6 Investment Policy Statement 299.7 Risk management strategies to be employed by the REIT Manager 309.7.1 Internal risk management 309.7.2 Independent checks 309.8 Level of Borrowings and the assumed terms and interest rates 319.8.1 Limitations on Borrowing under the Regulations 31
10. THE TRUSTEE 3210.1 Senior Management 3210.2 Co-operativeBankroleastrustee 3410.3 Trustee’s power to borrow on behalf of trust and charge orpledgeassetsassecurity 3510.3.1Trustes’spowerundertrustdeedtoborrow 3510.3.2 Limits contained in the act or regulation 3610.3.3 Circumstances in which REIT Securities Holder may be required to vote to approve a borrowing by the Trustee 3610.3.4ImplicationsoftheTrusteeexceedingthelimitsinActor Regulations or the limits set out in the Trust Deed 36
Contents
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11. THE PROMOTER 3711.1 Overview 3711.2 Investment Principles 3711.3 Shareholding Structure 3711.4 Board of directors 3711.5 SeniorManagement 3811.6 Resources and experience in the conduct of development and construction activities 4011.7 Minimum regulatory investment to be maintained by the Promoter 4111.8 Relationship between the Promoter, REIT Manager and the Owners of the asset to be transferred 4111.9 Promoter’scapacitytofindcostoverruns 41
12 THE REIT MANAGER (FUSION INVESTMENT MANAGEMENT LIMITED) 4212.1 Overview 4212.2 Products and Services 4212.3 Board of Directors 4212.4 Senior Management 4312.5 FusionInvestmentManagement’sroleasREITManager 4512.6 REITManager’sTermsofAppointment 4512.7 ShareholdingStructure 45 4013. THE PROPERTY MANAGER 4613.1 Overview 4613.2 The services we Offer 4613.3 Property Management services 4613.4 Property Manager’s sales strategy 49
14. THE STRUCTURAL ENGINEER 5014.1 OverviewandBackground 5014.2 Services 5014.3 KeyPersonnel 5014.4 RoleoftheStructuralEngineer 5214.5 TimingforthesubmissionoftheStructuralEngineer’sReport 5214.6 PotentialconflictsofinterestoftheStructuralEngineer 52
15. THE PROPERTY VALUER 5315.1 Keypersonnel 5315.2 Policyinrelationtorevaluations 5315.3 PotentialconflictsofinterestofthePropertyValuer 53
16. THE PROJECT MANAGER CERTIFIER 5416.1 Overview 5416.2 Background 5416.3 Services 5416.4 KeyPersonnel 5416.5 Roles,duties,responsibilitiesandobligationsofthePMC 5416.6 TimingforthesubmissionoftheinitialProjectManagerCertifier’sReport 5416.7 PotentiallyconflictinginterestsorcompetingrolesofthePMC 54
17. KEY TERMS OF THE TRUST DEED AND SCHEME DOCUMENTS 5517.1 KeyaspectsoftheTrustDeed 5517.1.1 Keyparties’roles,responsibilitiesandobligations 5517.1.2 LiabilitiesoftheTrusteeandREITManager 5517.1.3 PowersoftheTrusteeandREITManager 5517.1.4 Appointment,removal,retirementorreplacementofParties 5517.1.5 Valuations 5517.1.6 MeetingsofSecuritiesHolders 55
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17.1.7 Rights of REIT securities holders, including limitations of those rights and decisions or actions requiring the approvalofREITsecuritiesholders 5617.1.8 Requirementsforlisting 5617.1.9 RightsandlimitsontheabilitytocallforortoobtainredemptionofREITsecurities 5617.1.10 Circumstances in which connected persons are not permitted to exercise voting rights in respect ofREITSecuritiesheldbythem 5617.1.11 Maximum fees and charges permitted by the trust deed and payable by investors either directly or indirectlyoutoftheassetsofthetrust 5617.1.12 Permittedexpenses,costsandchargespayableoutoforreimbursablefromtheassetsofthefund 5617.1.13 TheterminationorwindingupofFRED-COMMERCIAL 5617.2 Summaryofthematerialtermsofotherschemedocuments 5717.2.1 ContractwiththeREITManager 5717.2.2 ContractwithLegalAdvisor 5717.2.3 ContractwithProjectManagerCertifier 5817.2.4 ContractwithStructuralEngineer 58
18. OVERVIEW OF PROJECTS TO BE UNDERTAKEN 5918.1 GreenwoodCity 5918.2 OwnershipofSPV 5918.3 IntentionsoftheTransferorsandLock-UpPeriod 5918.4 FRED-CommercialSourcesandUsesofFund 5918.5 ProformaProjectTimeScaleandPhasing 6018.6 RegulatoryApprovals 6018.7 GreenwoodCityProjectStatusUpdate-May2016 6018.7.1 SummaryofMay2016ValuationReport 6118.7.2 Summary of May 2016 Project Status Report 63
19. PRO-FORMA FINANCIAL INFORMATION 6619.1 Income Statements 6619.2 Balance Sheet 6619.3 CashflowStatement 67
20. KEY ASSUMPTIONS AND SENSITIVITY ANALYSIS 6820.1 KeyAssumptions 6820.2 SensitivityAnalysis 6820.2.1 Construction Period: Base Case 6820.2.2 Construction Period: + 6 Months 6920.2.3 Construction Period: + 12 Months 6920.2.4 Construction Period: + 18 Months 7020.2.5 PostDevelopmentPeriod:+6Months 7020.2.6 Post Development Period: + 12 Months 7120.2.7 Post Development Period: + 18 Months 71
21. FRED - COMMERCIAL VALUATION AND VALUATION BASIS 72 21.1 ValuationSummary 7221.2 OverviewofValuationApproachesandMethods 72
22. ASSET VALUATION AND VALUATION BASIS 7322.1 AssetstobevestedintheTrust 7322.2 AssetsValuer 7322.3 ValuationBasis 7322.4 ValuationSummary 7322.5 Implicationsoffailuretoinvestwithin180days 7422.6 Policy in relation to revaluations 74
23. INVESTMENT CONSIDERATIONS 7523.1 Opportunityforportfoliodiversification 7523.2 Liquidity 7523.3 Opportunitiesintherealestatesector 7523.4 Experiencedandincentivizedteam 75
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24. ECONOMIC OVERVIEW 7624.1 Kenya Economic Performance 7624.2 Macro-SectorOverview 7624.3 Macro-EconomicOverview 7724.4 Economic overview of Meru 79
25. REAL ESTATE SECTOR OVERVIEW 8025.1 Propertymarketsegments 8025.2 TrendsintheHousingMarket 8125.3 Privatesectorplayersinthehousingsector 8225.4 Growthinvalueofapprovedbuildingplans 8225.5 Housingmarketprojections 8325.6 Regulatoryframework 8425.7 AnalysisofDemandforHousing 84
26. ACCOUNTS & FINANCIAL STATEMENTS 86
27. RISK FACTORS 8927.1 RisksRelatedtotheAssetsofFRED-Commercial 8927.2 RisksRelatedtoFRED-Commercial’sSecurities 91
28. FEES, COSTS AND EXPENSES 9228.1 Fees,costsandexpensesinrelationtotheIssueorOfferoftheREITsecurities 9228.2 Fees,costsandexpensespayablebytheTrustee 9228.3 Statement of the Estimated MER of the REIT 9228.4 Limits imposed by the Regulations on the charging of fees or reimbursement of expenses 92
29. DISTRIBUTION POLICY AND FACTORS DETERMINING DISTRIBUTION 9329.1 Distribution Policy per the Trust Deed 9329.2 DistributionofRealizedCapitalGains 9329.3 RetentionofRealizedCapitalGains 9329.4 Powers and Obligations of the REIT Manager and the Trustee with respect to distributions 9329.5 ImplicationsoffailuretomakedistributionsaspertheRegulations 93
30. TAXATION, DISCRETION AS REGARDS DISTRIBUTIONS & IMPLICATIONS FOR TAXATION TREATMENT OF THE REIT AND DISTRIBUTIONS 9430.1 Taxation treatment of the REIT 9430.2 Tax on distributions to investors 9430.3 Stamp duty 9430.4 Tax treaties 9430.5 Expertopinionsontaxtreatment 9430.6 Circumstances in which taxation treatment may vary 94
31. TRANSFERABILITY OF REIT SECURITIES, LISTING AND REDEMPTION 9531.1 RestrictiononthetransferabilityoftheREITsecurities. 9531.2 ListingoftheREITsecurities 95
32. EXPERT OPINIONS 9632.1 SummaryofSPVvaluer’sreport 9632.2 Summaryofpre-feasibilityreport 96
33. MEETINGS, REPORTS AND ACCOUNTS & REIT SECURITIES HOLDERS’ RIGHTS 9733.1 Requirement for meetings and the rights of REIT securities holders to require the calling of meetings; 9733.2 Notices and voting 9733.3 Matters which require a special resolution 97
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33.4 Matters which must be put to a vote of REIT securities holders 9733.5 REITsecuritiesholder’srighttoreceivereportsandfinancialstatements 9833.6 Statement on the key rights of REIT securities holders 98
34. ADDITIONAL INFORMATION 9934.1 Material Contracts 99
35. CONSENTS 100
36. DOCUMENTS AVAILABLE FOR INSPECTION 101
37. APPLICATION FOR REIT SECURITIES & APPLICATION FORM 10237.1 AcceptanceandApplicationProcedures 10237.2 Opening and Closing Date of the Offer 10237.3 ApplicationMoney 10237.4 Rejection policy 10437.5 Refundpolicy 10437.6 AllocationPolicy 10437.7 ForeignInvestors 10437.8 How to complete the application 10437.9 Minimum number and value of REIT securities that can be applied for 10437.10 AllocationofUnits 10437.11 Qualificationofaninvestorasaprofessionalinvestor 104
38. AUTHORISED SELLING AGENTS 105
39. SCHEDULES/ APPENDICES 10739.1 AuditedFinancialStatementsfortheperiodending31stDecember2014ofTrustee 10739.1.1 Statement of Comprehensive Income 10739.1.2 StatementofFinancialPosition 10839.2 REITManager’sAuditedFinancials 10939.2.1 Statement of Comprehensive Income 10939.2.2 StatementofFinancialPosition 10939.3 PropertyManager’sAuditedFinancials 11039.3.1 Statement of Comprehensive Income 11039.3.2 StatementofFinancialPosition 11039.4 OfferApplicationForm 11139.5 LetterofUndertaking 11439.6 LegalOpinion 115
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THISDOCUMENTISIMPORTANTFORCONSIDERINGWHATACTIONTOTAKEANDREQUIRESYOURCAREFULATTENTIONASITINCLUDESLEGAL,MARKETASWELLASHISTORICAL,CURRENTANDFUTUREFINANCIALINFORMATION.
1 Important Notice
The Fusion Real Estate Development Trust - Commercial (“FRED - COMMERCIAL”) Offer is restricted and therefore is only open to Professional Investors as defined in the Definitions and Interpretations section.
In making your decision to invest in REIT Securities you should be aware that there is no recourse to the assets of the Issuer or the Trustee.
The investment in REIT Securities is an equity investment, and as a REIT Securities Holder in the REIT you invest as an equity investor. Distributions and return of capital are not guaranteed and are dependent on the performance of the assets of the REIT.
Should the Trustee exercise its authority to borrow on behalf of the Trust then Unit Holders rights to distributions and to the assets of the REIT will rank after the payments to creditors.
The Trustee, REIT Manager and other parties are also entitled to receive payment of fees and expenses ahead of payments to REIT Securities Holders who invest in REIT Securities.
This Offering Memorandum contains information that is provided in compliance with the requirements of the Capital Markets Act (Cap. 485A), the rules and regulations made thereunder, and the Rules of the Nairobi Securities Exchange (“NSE”).
This Offering Memorandum is issued by Fusion CapitalLimited(“Fusion”or“thePromoter”or“theIssuer”)andhasbeen prepared in respect of the issue and subscription of the UnitsbeingissuedbyFusionD-REIT(the“DevelopmentandConstructionRealEstateInvestmentTrust”orthe“D-REIT”)and the subsequent listing of the Units on the NSE. No REIT Securities can be issued based on this Offering Memorandum more than six months after the stated date of publication of this Offering Memorandum.
Application has been made to the Capital Markets Authority (“CMA” or “the Authority”) and the Scheme has been authorized by the Authority. As a matter of policy, the CMA assumes no responsibility for the correctness of any statements or opinions made or reports contained in this Offering Memorandum. In addition, the Offering Memorandum has been approved by the Authority. The approval by the Authority is not a recommendation nor a statement by the Authority in relation to the suitability of the REIT for investment or as to the risks and the Authority has no liability.
The NSE has given permission for listing of the Units.
It is expected that the trading of the Units will commence on Thursday, July 28th 2016. The NSE assumes no responsibility for the correctness of any of the statements made or opinions or reportsexpressedinthisOfferingMemorandum.AdmissionoftheUnitsissuedpursuanttotheD-REITregulationsontheNSEisnotto be taken as an indication of the merits of the Promoter or of the Units.
If you are in any doubt about the contents of this document or the nature or the transaction or investment or the risks attached to the investment then you should consult a person licensed under the CapitalMarketsActwhospecializesinadvisingoninvestmentsinor acquisitions of securities.
Legal Advisor’s OpinionsMboyaWangong’u&Waiyaki, the LegalAdvisors, have givenand not withdrawn their written consent for the inclusion in this Offering Memorandum of their Legal Opinion, and the references to their names, in the form and context in which they appear, and haveauthorizedthecontentsofthesaidLegalOpinionwhichformpart of the documents available for inspection.
Reporting Accountant’s OpinionThisOfferingMemorandumcontainsstatementsfromDeloitte&Touche,theReportingAccountants,whichconstituteastatementmadebyanexpertintermsofReg.17(1)(i)oftheRegulations.TheReportingAccountantshavegivenandnotwithdrawn theirconsent to the issue of the said statements in the form and context in which they are included in this Offering Memorandum.
Forward-looking statementThisOfferingMemorandumcontains“forward-lookingstatements”relating to the REIT’s proposed business. These forward-lookingstatementscanbeidentifiedbytheuseofforward-lookingterminologysuch as “believes”, “expects”, “may”, “is expected to”, “will”,“will continue”, “should”, “would be”, “seeks” or “anticipates”or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plansor intentions.Thesestatements reflect thecurrentviewsofthe REIT Promoter with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements of the REIT to be materially different from the future results, performance or achievementsthatmaybeexpressedorimpliedbysuchforward-looking statements. Some of these factors are discussed in more detailunder“RiskFactors”.Shouldoneormoreoftheserisksoruncertaintiesmaterialize,orshouldunderlyingassumptionsproveincorrect, actual results may vary materially from those described in this Offering Memorandum as anticipated, believed, estimated or expected.
This Offering Memorandum is dated: 20th June 2016
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2 Declarations
The Issuer declares that all information stated in this Offering Memorandum and the statements contained herein are correct and neither the Board of Directors, minutes, audit reports nor any other internal documents contain information which could distort the interpretation of this Offering Memorandum.
InaccordancewiththeprovisionsofRegulation25oftheREITs Regulations, the Promoter being the Offeror in this Offer shall have continuing liability for any covenants and warranties given, misleading or deceptive statements made and/or any omissions in this Offering Memorandum.
Signed………………………………..................... Signed……………………………….....................Dr. Philip Goodwin Kimathi KamencuChairman,FusionCapitalLimited Director,FusionCapitalLimited
Signed………………………………..................... Signed……………………………….....................Luke Kinoti Nelly MbuguaChiefExecutiveOfficer,FusionCapitalLimited Director,FusionCapitalLimited
Signed………………………………. Signed……………………………….....................Susan Kagundu Constantine MalaiDirector,FusionCapitalLimited Director,FusionCapitalLimited
Signed………………………………..................... Signed……………………………….....................Dr. James Mageria Daniel KamauDirector,FusionCapitalLimited Director,FusionCapitalLimited
We,theLeadTransactionAdvisorandtheLegalAdvisor,herebystatethatthisOfferingMemorandumandtheSchemeDocumentscomplywiththeActandtheRegulations.
Signed………………………………..................... Signed……………………………….....................MauriceOpiyo PeterM.WaiyakiManagingDirector–NICCapitalLimited Partner–MboyaWangong’u&Waiyaki
Each expert named in the Offering Memorandum shall be liable solely for misrepresentations and omissions arising from statements made by them, provided that due consent has been obtained from the relevant expert for the inclusion of such statements in the Offering Memorandum.
Fortheavoidanceofdoubt,theliabilityoftheTrusteeshallbelimited to covenants and warranties made by itself as well as any misleading and deceptive statements made by, and included in the Offering Memorandum with the approval of, the Trustee in its capacity as an expert.
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3 Corporate Information of the Main Parties
3.1 THE PROMOTER
CONTACT INFORMATION FOR THE PROMOTER
Fusion Capital Limited, ACK Garden House, Block A, 1st Ngong Avenue
P.O. Box 47538 - 00100 Nairobi, Tel: +254 (020) 2710149/53/55
DIRECTORS OF THE PROMOTER
Name Position Nationality Address
Dr. Philip Goodwin Executive Chairman British P.O.Box47538-00100,Nairobi
Luke Kinoti Chief Executive Kenyan P.O.Box47538-00100,Nairobi
Susan Kagundu ExecutiveDirector,Finance Kenyan P.O.Box47538-00100,Nairobi
Daniel Kamau Executive Director, Real Estate Kenyan P.O.Box47538-00100,Nairobi
Constantine Malai Non-ExecutiveDirector Kenyan P.O.Box47538-00100,Nairobi
Dr. James Mageria Non-ExecutiveDirector Kenyan P.O.Box47538-00100,Nairobi
Kimathi Kamencu Non-ExecutiveDirector Kenyan P.O.Box47538-00100,Nairobi
Nelly Mbugua Non-ExecutiveDirector Kenyan P.O.Box47538-00100,Nairobi
Company Secretary - Livingstone Associates of P.O. Box 30029 - 00100, Nairobi
CONTACT INFORMATION FOR THE TRUSTEE
Co-operative Bank of Kenya LimitedCo-operative Bank House,
2nd Floor, Haile Selassie AvenueP.O. Box 48231 - 00100 Nairobi,
Tel: +254 (020) 3276237
3.2 THE TRUSTEE
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DIRECTORS OF THE TRUSTEE
3.3 THE REIT MANAGER
CONTACT INFORMATION FOR THE REIT MANAGER
Fusion Investment Management LimitedACK Garden House, Block A, 1st Ngong Avenue
P.O. Box 47538 - 00100 Nairobi, Tel: +254 (020) 2738460
DIRECTORS OF THE REIT MANAGER
Name Position Nationality Address
Stanley C. Muchiri, EBS Chairman Kenyan P.O.Box48231-00100Nairobi
Julius M. Riungu ViceChairman Kenyan P.O.Box48231-00100Nairobi
Dr. Gideon M. Muriuki, MBS Managing Director Kenyan P.O.Box48231-00100Nairobi
MacloudMalonza Director Kenyan P.O.Box48231-00100Nairobi
J. Sitienei Director Kenyan P.O.Box48231-00100Nairobi
R. L. Kimanthi Director Kenyan P.O.Box48231-00100Nairobi
Benedict Simiyu Director Kenyan P.O.Box48231-00100Nairobi
W.Ongoro Director Kenyan P.O.Box48231-00100Nairobi
R. Simani Director Kenyan P.O.Box48231-00100Nairobi
Lawrence Karissa Director Kenyan P.O.Box48231-00100Nairobi
John Murugu Director Kenyan P.O.Box48231-00100Nairobi
W.J.Mwambia Representing PS National Treasury Kenyan P.O.Box48231-00100Nairobi
Company Secretary - Rosemary Majala Githaiga of P.O. Box 48231 - 00100 Nairobi
Name Position Nationality Address
John G. Msafari Chairman, Non-Executive
Kenyan P.O.Box47538-00100,Nairobi
Dr. Philip Goodwin Executive Director British P.O.Box47538-00100,Nairobi
Luke Kinoti Chief Executive Kenyan P.O.Box47538-00100,Nairobi
Gladys Mboya Non-ExecutiveDirector
Kenyan P.O.Box47538-00100,Nairobi
Charles Mbui Non-ExecutiveDirector
Kenyan P.O.Box47538-00100,Nairobi
Company Secretary - Maonga Ndonye Associates of P.O. Box 73248-00100, Nairobi
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4 Consultants and Advisors to the Transaction
Lead Transaction Advisor Legal Advisor
NIC Capital Limited NIC House, Masaba Road P.OBox44599-00100,Nairobi,Kenya Tel:+254202888000/4948000,Fax:+254202888505Contact: Maurice OpiyoEmail: [email protected]
Mboya Wangong’u & Waiyaki Advocates LexChambers,MajiMazuriRoad,Off James Gichuru RoadP.O.Box74041-00200,Nairobi,KenyaTel:+254202160312,Fax:+254202160312Contact:PeterM.WaiyakiEmail: [email protected]
Reporting Accountant Registrar
Deloitte & Touche CertifiedPublicAccountants(Kenya)DeloittePlace,WaiyakiWay,MuthangariP.O.Box40092-00100,Nairobi,KenyaTel:+254204230000,Fax:+254204448966Contact:FredaK.MuchenaEmail: [email protected]
CDSC Registrars Limited Nation Centre, Kimathi Street P.O.Box3464-00100,Nairobi,KenyaTel:+254(20)2912000Contact: Marion KioiEmail: [email protected]
Structural Engineer Property Valuer
Multiscope Consulting Engineers LimitedSilverpoolOfficeSuites,3rdFloorJabavu Lane, HurlinghamP.O.Box12012-00100,Nairobi,KenyaTel:+254202734744;+254722703475Fax:+254202717736E-mail:[email protected]
Ngotho Property Consultants Limited7thFloor,TowerA,EdenSquare,ChiromoRoad,WestlandsP.OBox1870-00606,Nairobi,KenyaTel:+254728130925,+254203673309Contact: Paul NgothoEmail: [email protected]
Project Manager Certifier Property Manager
Beeque Consultants Limited PrincessFlats,UnitNo.11Kabarnet Road, Off Ngong RoadP.O.Box3280-00200,Nairobi,KenyaTel:0722667146,0733734535,Fax:+25420577269Contact: John M. MburireEmail: [email protected]
Citiscape Valuers & Estate Agents Limited1stFloor,OccidentalPlaza,MuthithiRoad,WestlandsP.O.Box16062-00100,Nairobi,KenyaTel:+254203742169;+254202503636;+254708848481;+254733785698Contact: Nelly K. Mbugua Email: [email protected]
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Tax Consultant Asset (SPV) Valuer
Deloitte & Touche CertifiedPublicAccountants(Kenya)DeloittePlace,WaiyakiWay,MuthangariP.O.Box40092-00100,Nairobi,KenyaTel:+254204230000,Fax:+254204448966Contact:MauriceWangutusiEmail: [email protected]
Burbidge Capital Limited 4thFloor,NivinaTowers,MuseumHill,WestlandsRoad,WestlandsP.OBox51525-00100,Nairobi,Kenya.Tel:+254202100102;+254203744618Contact: Edward BurbidgeEmail: [email protected]
Lead Sponsoring Broker Receiving Bank
African Alliance Kenya Investment Bank Limited 1st Floor,WingB,TransnationalPlaza,Mama Ngina Street, NairobiPOBox27639-00506,Nairobi,KenyaTel:+254202762664/27620000Contact:AlistairGouldEmail: [email protected]
NIC Bank LimitedNIC House, Masaba RoadP.O.Box44599–00100,Nairobi,KenyaTel:+254(20)2888000,Fax:+254(20)2888505Contact: Peter MuthiniEmail:[email protected]
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5 Definitions and Interpretations
The following terms shall have the respective meanings set out below:
“Accounting period” means the period of 12 monthsstartingontheFirstdayofJanuaryandendingonthelastday of December each year;
“Act”referstotheCapitalMarketsAct,Chapter485AoftheLaws of Kenya, as amended from time to time;
“Auditors”meanstheindependentauditorappointedfromtime to time by the Trustee as auditor of the Scheme, subject totheprovisionsoftheActandtheRegulations;
“Authority” or “CMA” means the Capital MarketsAuthorityestablishedundertheAct;
“Authorized Units”meansallUnitsthatmaybeissuedatanygiventimebyFRED-COMMERCIAL,whethertheyhavebeenissued(andaretherefore‘UnitsinIssue’)ornot;
“Beneficiary” means any holder of REIT Securities ofFRED-COMMERCIALfromtimetotime;
“Business Day” means a day which is a working day inKenya and excludes Saturday, Sunday, and public holidays;
“CDS Account” means a central depository electronicaccountheldatCDSCthatholdsfinancialsecuritiessuchas shares and bonds;
“CDSC” means the Central Depository & SettlementCorporation Limited;
“Closed ended fund”meansafundortrustinwhich-
(a) Apersoninvestsbysubscribingforanissueof REIT Securities or by acquiring REIT Securities in a secondary market;
(b) Thevalueoftheinvestmentfluctuatesover time as determined by market price for the REIT Securities;
(c) ThenumberoftheREITSecuritiesissued remains constant over time except where a new issue of REIT Securities is made or there is a reduction in the capital of the fund initiated by the trustee or as a consequence of termination or winding up of the trust; and
(d) TheREITSecuritiesHolder,exceptwherethereis a reduction in the capital of the fund initiated by the trustee or as a consequence of termination or windingupofthetrust- (i) Isnotentitledtorequirethetrusteetoredeem the REIT Securities; and
(ii)MayonlyexittheinvestmentintheREIT Securities by selling the units in a secondary market;
“Connected person”or“connected party”inrelationtothe real estate investment trust scheme includes:
(a) TheREITManager;
(b) Avaluerappointedtoundertakeavaluationof the scheme;
(c) TheTrustee;
(e) ASubstantialHolderofREITSecuritiesin the Scheme;
(f) Adirector,aseniorexecutiveoranofficerofany personreferredtoin(a),(b)and(c)above;
(g) Anassociate(as“Associate”isdefinedintheAct, asamendedfromtimetotime)ofanyperson referredtoin(d)and(e)above;
(h) Acontrollingentity,aholdingcompany,a subsidiary or an associated company of anypersonreferredtoin(a)to(d)above;
“D-REIT”meansadevelopmentandconstructionrealestateinvestmenttrustauthorizedassuchbytheAuthorityunderthe Regulations;
“D-REIT Scheme” or “development and construction real estate investment trust scheme”meansa realestateinvestmenttrustschemeauthorizedassuchbytheAuthorityunder the Regulations;
“Eligible Investments”inrespectofFRED-COMMERCIALmeanstheassetsandinvestmentsspecifiedunderRegulation76 of the Regulations;
“Eligible Real Estate”hasthemeaningattributedtoitunderthe Regulations;
“Foreign Investor”meansapersoneligibleforclassificationas a professional investor under the Regulations but which is neitherestablishedinnoracitizenofanyoftheEastAfricanPartner States;
“FRED - COMMERCIAL”meanstheFusionRealEstateDevelopment Trust - Commercial established under theTrust Deed;
“Fund”meansallcontributionsofmoneyormoney’sworth,propertyorrealestate,orotherincomeorassetsofFRED- COMMERCIAL, including money borrowed or raisedby the Trustee for the purpose of the Scheme and includes
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all amounts due and any rights of the REIT Manager or REIT Trustee to institute action against any person and the rightsofthebeneficiariesofthetrusttogethertoinstitutean action against any party including the Trustee;
“Initial Offer” means the first offer or issue of REITSecurities made to persons other than the Promoter or parties connected to the Promoter or REIT Manager of FRED-COMMERCIAL;
“Investor”meansaholderofREITSecuritiesofFRED-COMMERCIALandwhoisabeneficiaryundertheTrustDeed;
“Issue Price”meanstheOfferpriceofone(1)Unitwhichis KES 23.00;
“Management Fee”meansamountpayableby theREITTrustee to the REIT Manager for managing FRED –COMMERCIALinaccordancewiththetermsoftheREITManagementAgreement;
“Net Asset Value”or“NAV”meansthevalueofallassetsof the Fund less the value of all liabilities of theTrust,includingTrusteeandManagementFees,asatthedaythecalculation is made;
“Net asset value per unit”or“NAV per unit”meanstheNAVdividedby thenumberofunitsofREITSecuritiesissued and not redeemed on the day the calculation is made;
“NSE”meanstheNairobiSecuritiesExchangeLimited;
“Offer Units” or “Units on Offer” means 100,000,000UnitsinFRED-COMMERCIALonofferpursuanttothisOffering Memorandum;
“Ordinary Resolution” means a resolution passed byunitholders by simple majority;
“Professional Investor”means-
(a) AnypersonlicensedundertheAct;
(b) Anauthorizedschemeorcollectiveinvestment scheme;
(c) Abankorsubsidiaryofabank,insurancecompany, co-operativesociety,statutoryfund,pensionor retirement fund; or
(d) Apersonincludingacompany,partnership,association or a trustee on behalf of a trust which, either alone, or with any associates on a joint account subscribes for REIT securities with an issue price equal to at least KES5,000,000/=.
“Real Estate Investment Trust Assets”or“REIT Assets”includes all assets of the REIT;
“Real Estate Investment Trust Fund”or“REIT Fund”hasthesamemeaningastheFund;
“Realized Capital Gains” means cash equivalent ofappreciation of capital assets formerly held by the REIT disposed through sales or letting;
“Recognized Securities/Stock Exchange” means theNSE, or any other securities exchange in or outside Kenya approved by the REIT Manager and the Trustee, subject to theAct,onwhichtheREITSecuritiescreatedbytheTrustDeed are listed;
“Register” means the register of the holders of FRED- COMMERCIAL Securities, as maintained by or onbehalf of the Trustee pursuant to the Trust Deed and the Regulations;
“Regulations” means the Capital Markets (Real EstateInvestment Trusts) (Collective Investment Schemes)Regulations, 2013 as amended from time to time;
“REIT”meansrealestateinvestmenttrustand“theREIT”means this REIT established by the Trust Deed;
“REIT Manager” means the person licensed as a REITManager under the Regulations and appointed as the REIT Manager of the REIT pursuant to the Trust Deed and in accordance with the provisions of the Regulations;
“REIT Management Agreement” means the agreemententered into between the REIT Trustee and the REIT Manager with respect to the management of the REIT and dated 1st March 2016;
“REIT Securities”inrelationtoFRED-COMMERCIALmeansunits inFRED–COMMERCIAL,and in relationto any other REIT Scheme means units in such real estate investment trust or a real estate investment trust scheme;
“Securities”means any instrument defined as such undertheActandincludesREITSecurities;
“Securities Holder”or“Units Holder”meansanypersonwho has purchased and holds any Units and is registered in the Register as evidence that he holds the Units;
“Scheme”means a real estate investment trust schemeasdefinedintheRegulations;
“Scheme Documents”include-
(a)ThisOfferingMemorandum,includinganyconversion or supplementary Offering Memorandum;
(b) TheTrustDeedandanyamending,supplementalor replacement Trust Deed;
(c)AnydocumentappointingaREITManagerorsetting out the terms of appointment, the role or obligations of a REIT Manager;
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(d)AnydocumentappointingaPropertyManager,Project ManagerCertifierorStructuralEngineerorsettingout the terms of appointment, the role or obligations of such persons;
(e)Anydocumentdescribedin(b),(c)or(d)abovewhich relates to an investee trust; and
(f) TheMemorandumandArticlesofAssociationofany investee company and any shareholders’ agreement including any amending, supplemental or replacement MemorandumandArticlesofAssociationor shareholders’ agreement.
“Special Resolution”meansaresolutionpassedbyamajorityof not less than three-fourths of such holders of REITSecurities who, being entitled so to do, vote in person (or whereproxiesarepermittedbyproxy)atageneralmeetingof holders of FRED - COMMERCIALUnits of which atleast twenty one days’ written notice specifying the intention to propose the special resolution has been given;
“Special Purpose Vehicle” or “SPV” means MeruGreenwood Park Limited, a property holding company being the registered owner of Land Reference Number Meru Municipality Block I/3;
“Substantial holder of REIT Securities”means a personwhoholdsfifteenpercentum(15%)ormoreof the issuedFRED-COMMERCIALsecurities,whereforthepurposesof calculating thefifteenper centum (15%), in addition toany REIT Securities held by the holder, that person is also considered to be the holder of any REIT Securities held by:
(a) Anassociateofaholderwhoisanindividual;or
(b) Adirector,seniorexecutive,officer,controllingentity, holding company, subsidiary or associated company of the holder, if the holder is an entity other than a natural person;
“Total Asset Value”or“TAV”meansthevalueofallassetsof the fund based on the most recent valuation;
“Trust Deed”or“Deed”meanstheTrustDeedenteredintobythe Promoter and the REIT Trustee dated 29thFebruary2016(as supplemented and amended by the supplemental Trust Deeddated15thApril2016)thatsetsoutthetrustsgoverningFRED-COMMERCIALandincludeseveryinstrumentthatvaries those trusts, or affects the powers, duties, or functions oftheTrusteeormanagerofFRED-COMMERCIAL;
“Trustee”inrelationtoFRED-COMMERCIAL,meanstheTrustee herein, or his replacement or successor;
“Unit”meansasecurityinFRED-COMMERCIALbeingan undivided share, right, interest or entitlement in the assets ofFRED-COMMERCIALasawhole,andmaynotbeconstrued to confer interest in a particular asset of the REIT;
“Units in Issue”meansallunitswhichhavebeencreatedandissued and which have been entered in the Register including those held or deemed to be held by the REIT Manager, and which have not been cancelled;
“Valuation report”meansareportmadebyavaluer;and
“Valuer”meansapersonappointedasavaluerundertheTrustDeed or by other contract and subject to the Regulations to prepare or who is required to prepare a valuation report.
Terms not defined herein will conform to the definitions adopted in the Act, the Regulations or the Trust Deed.
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6 Glossary of Abbreviations
CDA CentralDepositoryAgent
CDSC CentralDepository&SettlementCorporationLimited
CMA CapitalMarketsAuthority
D-REIT Development and Construction Real Estate Investment Trust
EBIT Earnings Before Interest and Tax
FCL FusionCapitalLimited
FIM FusionInvestmentManagementLimited
FRED - COMMERCIAL FusionRealEstateDevelopmentTrust-Commercial
IFRS InternationalFinancialReportingStandard
IRR Internal Rate of Return
KES Kenya Shillings
LTA LeadTransactionAdvisor
MER Management Expense Ratio
NAV NetAssetValue
NSE Nairobi Securities Exchange Limited
OM Offering Memorandum
PMC ProjectManagerCertifier
REIT Real Estate Investment Trust
RM REIT Manager
SE Structural Engineer
SPV SpecialPurposeVehicle
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7 Frequently Asked Questions
What is a Real Estate Investment Trust (REIT)?
A REIT is a vehicle which allows investors to pool resources together and invest in real estate. The Securities Holders/ Unit Holders of REITs will hold units which may either be redeemed by the REIT Manager or are tradeable in a secondary market on a securities exchange.
REITs are relatively new investment vehicles in Kenya.
How does a REIT finance its activities?
A REIT typically requires significant and continuingcapitaltobuyadditionalassets.AREITgenerallyfinancesits activities through security offerings and debt offerings, including subordinated and senior debt, as well as through financing agreements (credit agreements, term loans,revolving lines ofcreditetc.)withbanksandotherlenders.
Who invests in REITs?
Besidesindividualinvestors,organizationssuchaspensionfunds, investment banks, insurance companies, private equity corporations and other institutional investors invest in REITs due to potential for long term growth and, in some cases,highlevelsofcurrentincome.ForalistedD-REIT,the minimum permissibleinvestmentisKES5,000,000/=.
What are the returns to REIT investors?
REITs typically provide dividends plus the potential for capital appreciation.
What is the typical structure of a REIT?
The Regulations require that a REIT:
(a)Isstructured as an unincorporated common law trust divided into units;(b) IsestablishedunderaTrustDeed;(c) HasatrusteewhoisindependentoftheREIT Manager and the promoter; and(d) HasaREITmanager and a trustee who are licensed and satisfy requirements under the Regulations.
What types of REITs are there?
The Regulations allow for two types of REITs based on the primary objective:
(a)DevelopmentandConstructionREIT(D-REIT)– a REIT dealing in development and construction of real estate projects;(b)IncomeREIT(I-REIT)–aREITdealinginthe acquisition of real estate as a long term investment for the purpose of earning income.
What are the requirements for investing in a D-REIT?
TheRegulationsrequirethatinvestorsinD-REITschemesmust be Professional Investors.
How do I Invest in a REIT?
One may invest in a publicly traded REIT, which is listed on a securities exchange, through a securities dealer or stockbroker. An investor can enlist the services of aninvestment bank, investment advisor or financial plannerto help analyze his or her financial objectives. Theseprofessionals may be able to recommend appropriate REIT investmentsfortheinvestor.Aninvestormayalsocontacta REIT directly for a copy of the REIT’s annual report (if any), prospectus or OfferingMemorandum and otherfinancial information.
How are REIT securities valued?
Like companies whose stocks are publicly traded, REIT securities are priced by the market throughout the trading day. To assess the investment value of REIT units, typical analysis involves one or more of the following criteria:
(a) Anticipatedgrowthinearningsperunit;(b) AnticipatedtotalreturnfromtheREITunit,estimated from the expected price change and the prevailing dividend yield;(c) Currentdividendyieldsrelativetootheryield-oriented investments (for example, bonds, stocks and other high-incomeinvestments);and(d) Underlyingassetvaluesoftherealestateand/or mortgages, and other assets.
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8 Key Features of the Offer
KeyfeaturesofFRED-COMMERCIALwillbeasfollows:
(a) Itisstructuredasacommonlawunincorporated trust divided into units;(b) ItisestablishedthroughtheTrustDeed;(c) TheTrusteeisindependentoftheREITManager;
ThissectioncontainsasummaryoftheOfferofunitsinFRED-COMMERCIAL.FRED-COMMERCIALisstructuredasaD-REITmeaningthattheTrustwillprimarilybe involved in acquiring real estate property for development and construction.
(d) TheassetsintheTrustareheldinthenameofandare sunder the control of the Trustee.
FRED-COMMERCIALoffersforsale100,000,000Units(“Offer Units”)worthKES2,300,000,000.ProceedsoftheOffer will be invested in the acquisition, development and construction of real estate development assets as described below.
Details Statistics
ObjectivesofFRED-COMMERCIAL
TheobjectiveofFRED-COMMERCIAListogenerateincomeandcapitalgrowthbyprincipally investing in Real Estate Development Projects. The REIT Manager may, with the consent of Unit Holders, vary the main objective of the REIT scheme to take account of changing economic factors, tax laws and provisions.
TheobjectsofFRED-COMMERCIALaresetoutinClause5oftheTrustDeedandare as follows:“5.1 theacquisitionofeligiblerealestate,investmentineligibleinvestmentsand
the undertaking of real estate development and construction projects including, but not limited to commercial and other real estate related development and construction projects;
5.2 marketingandsaleofrealestate;5.3 retentionandmanagementoftherealestateassetsofthetrustwiththeobjective
of earning income from the assets;5.4 theundertakingofincidentalorconnectedactivitiesandactivitiesrelatedtothe
assets of the trust; and5.5 suchotheractivitiesasmaybeauthorizedbytheRegulations.”
Nature of the Trust and Redemption
FRED-COMMERCIALisaclosedendedfundmeaningthatamongothers,theTrusthas the obligation to redeem Units once they are issued. Investors will therefore only be abletoexitfromFRED-COMMERCIALbydisposingofUnitsinthesecondarymarketbased on market value of the units.
NOTE: LIQUIDITY OF THE UNITS WILL DEPEND ON THE DEMAND ANDSUPPLYFORTHEREITUNITSWITHINTHESECONDARYMARKET.
Eligibility to invest Investment in FRED -COMMERCIAL is restricted and is only open to ProfessionalInvestors.
Issue Price per Unit KES 23.00
Total number of Units on Offer
100,000,000
Classes of Units The REIT will not issue different classes of Units.
Listing The REIT Units will be listed on the restricted market segment of the NSE.
TransferabilityofFRED-COMMERCIALUnits
Every fully paid Unit in the Trust is freely transferable subject to the trading rules of the securities exchange on which the Units will be listed.
DistributionofRealizedCapital Gains
TheRegulationsdonotrequireFRED-COMMERCIAL,beingaD-REITScheme,tomake annual distributions to the REIT Unit Holders. However, the REIT Manager may recommendtotheTrusteeandtheTrusteemaydistributeanyrealizedcapitalgainstotheREITUnitholdersifandwhenthecapitalgainsarerealized.
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Details Statistics
Retention and Reinvestment ofRealizedCapitalGains.
TheREITManagermayretainanyrealizedcapitalgainsandinvestinnewincomeproducing real estate, developments or buy to rent housing provided that: (a)theREITManagerhasreceivedapprovalfromtheREITUnitHoldertoretainthe
capital gains by way of ordinary resolution; and(b)anyretainedcapitalgainswillbereinvestedwithintwoyearsofthedateoftheir
realization,failingwhichtheymustbedistributedwithintwomonthsoftheendofthe two years.
Term of the Trust FRED-COMMERICALshallbeunlimitedindurationsubjecttothePerpetuitiesandAccumulationsAct(Chapter161oftheLawsofKenya).
Proposed Initial Projects The initial project under FRED - COMMERCIAL is ‘Greenwood City’- a mixed usedevelopmentfeaturingastateoftheartshoppingmall,amodernofficeblockandhigh-endtwoandthree-bedroomapartmentslocatedatLandReferenceNumberMeruMunicipalityBlock 1/3 in Meru, Kenya.
AmoredetaileddescriptionoftheprojectissetoutinSection18.1herein.
AcquisitionofAdditionalAssets
The REIT Manager is permitted to acquire and develop additional assets as long as these acquisitions are permitted by the Regulations and are in line with the REIT Manager’s stated investment criteria.
REIT Manager’s investment strategy
FRED -COMMERCIAL shall invest in eligible investments and eligible real estate aspermittedbytheRegulationsforD-REITs.
FRED -COMMERCIAL’s investment policy shall encompass themanagement of FRED -COMMERCIAL’sliquiditypositionormanagementofassetsandliabilitiestoprovideadequateresources to meet anticipated fund demands.
FRED-COMMERCIAL’sinvestmentpolicyisthusdesignedtoguidetheTrusteeandtheREIT Manager in carefully deliberating and evaluating all available investment options for investingsurpluscashassetsofFRED-COMMERCIALwhichwillprovidemaximumreturns in the form of net interest income earned, capital gains and an optimum liquidity management strategy under various scenarios.
FRED-COMMERCIALmustmaintainreservestoprotectitselfanditsinvestorsagainstanticipated, unusual or unexpected cash requirements as well as earning reasonable return on its excess funds, without incurring undue risk.
Before any investment the investment recommendations initially go through a rigorous vetting process by the REIT Manager prior to approvals. This provides a strong monitoring mechanism and control which may be exercised with respect to the assets invested to ensure consistency with the investment objectives of the investor.
More detailed information on the investment strategy is set out in Section 9.4 of this Offering Memorandum.
Gross proceeds from the Offer
KES 2,300,000,000
Estimated net proceeds receivable by the Trust
KES2,200,550,000
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Details Statistics
Summary of Key Risks ThekeyrisksinvolvedininvestinginFRED-COMMERCIALinclude:
1. RiskRelatedtotheAssetsofFRED-Commerciala) Political Riskb) Insecurity Riskc) LandAcquisitionRiskd) Economic Riske) Execution Riskf) Demand Riskg) Market Risk
a. Currency Riskb. Interest Rate Riskc. Price Risk
h) FinancingRiska. Counterparty Riskb. Real Estate Market Downturnc. Counterparty Risk
2. RiskRelatedtoFRED–CommercialSecuritiesa) Price Riskb) Regulatory Riskc) Distribution/Dividend Riskd) Dilution Riske) Growth Riskf) Reputation Risk
The above along with mitigating factors are discussed in more detail in section 27 of this Offering Memorandum.
Ongoing role of the Promoter Provision of project management services to the REIT Manager in accordance with the project management agreement dated 8th September 2014 entered into between the Promoter and the SPV.
FinancialStructuringmechanisms
The Trustee, on behalfoftheREIT,mayborrowamountsofupto60%oftheTotalAssetValue.AnydistributionstoUnitHolderswillbenetofpaymentstoseniorlenders.
ThePromoteronbehalfoftheREIThasbeeninhighleveldiscussionswithvariousfinancialinstitutionswillingtoprovidedebtfinancingfortheproject.
TheconsequencesoftheREITinabilitytoraisethenecessarydebtfinancingisoutlinedinSection 27.
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Details Statistics
Summary of obligations of the Trustee: the Co-operativeBankofKenya Limited
AsTrustee,Co-operativeBank’srolesasoutlinedintheTrustDeedwillinclude:a) AppointmentofREITManagerandsupervisionofitsactivities;b) EnsurethattheFund&assetsoftheSchemeareinvestedaccordingtotheTrust
Deed, income of the Scheme is applied according to Scheme Documents, insurance ofassets,payments&distributionsmadeinaccordancewiththeScheme,andthatborrowing limitations are observed;
c) Maintain custody, hold, protect and control all the assets of the REIT scheme (held in the nameof theTrustee) for the benefit ofREITSecuritiesHolders asbeneficiariesofthetrust;
d)Acthonestlyandinafiduciarycapacityinthebest interestsofbeneficiariesandexercise due care and diligence in the discharge of their functions;
e) Enterintoborrowingarrangementsforthepurposeonlyoffulfillingtheobjectivesof the trust and may pledge or otherwise give security over the assets of the trust scheme to secure such borrowing;
f) Prepare and maintain a register of REIT Securities Holders of the Scheme. The Trustee may, with the prior written approval of theAuthority, appoint anotherperson to prepare and maintain the register on its behalf; and
g) ApplytotheAuthorityforterminationoftheScheme.
Summary of obligations of theREITManager:FusionInvestment Management Limited
AsREITManager,FIMwill:a) CarryouttheadministrationoftheREITAssetsincludingthemanagementofthe
portfolio of investments;b) AdvisetheTrusteeontheassetclasses,ifany,thatareavailableforinvestment;c) Formulateaprudentinvestmentpolicy;d) InvesttheREITFundinaccordancewiththeinvestmentpolicy;e) Reinvest any income of the REIT which is not required for immediate payments;f) Prepare and dispatch in a timely manner all cheques, warrants, notices, accounts,
summaries, declarations, offers and statements;g) Make available for inspection to the Trustee or any auditor appointed by the Trustee,
the records and the books of accounts, giving either oral or written information as required;
h) Befairandequitableintheeventofanyconflictofinterest;i) CredittotheREITallmonetarybenefitsorcommissionsarisingoutofmanaging
theFund,otherthanitsFees;j) AccounttotheTrusteewithinthirtydaysafterreceiptofanymoniespayabletothe
Trustee;k) Keep and maintain records of the REIT at all times; l) Provide instructions to the Trustee to implement the objectives of the REIT and
appoint a property manager or other person as its agent to assist it in undertaking its duties as RM; and
m) Be liable for any acts or omissions of its agents.
PLEASE NOTE THAT THE ABOVE IS ONLY A SUMMARY AND INVESTORS SHOULD READ AND UNDERSTAND THIS OFFERING MEMORANDUM IN FULL BEFORE DECIDING TO PARTICIPATE IN THE OFFER.
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Investor 1 Investor 2 Investor 3
Contractor Architect Engineers Project Manager etc
Project 3 Project 2 Meru GreenwoodPark Limited
Holds units
Trust Deed
Holds shares
Manages
Appoints
Appoints
Investor 4 Investor n
REIT Trustee(Co-operative Bank)
REIT Manager(FIM)
BelowisanoutlineofthevariouspartiesinvolvedinFRED-COMMERCIAL.
ThePromoterwillfacilitatethepurchaseoftheSPVwhichisheldinTrust.Thereafter,theTrusteeinconsultationwiththeREITManagerappointstheValuer,StructuralEngineer,AuditorandProjectManagerCertifier.
8.1 REIT Structure, Key Parties and Flow of Funds
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Project 1 Project 2
Capital gains
Investor 1 Investor 2 Investor 3 Investor n
Rental income
Returns & Capital Invested
REIT Manager + Trustee Fees + Other Service Fees
Debt repayment
Residual value (Capital & returns)
Capital
Project 3 Project 4 Project n
REIT Trustee
REIT Manager
Proceeds from the projects
Distribution
Decision ondividend and re-investment
Retained returns and capitalinvested in new projects
BelowisanoutlineoftheproposedflowoffundsfromFRED-COMMERCIAL.
Flow of Funds in the REIT
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8.2 The OfferThe REIT offers for subscription 100,000,000 units at a subscription price of KES 23.00 per unit. The Scheme will initially encompass Greenwood City - a mixed usedevelopment featuring a state of the art shopping mall, a modernofficeblockandhigh-end twoand three-bedroomapartments located in Meru, Kenya and which is further described in Section 18. The Trust will be a closed ended fund. Furthermore the Trust, with existing Unit Holders’approval, can issue additional units for further funding of
the REIT’s activities. This would be to both existing and new investors. Such offer could result in dilution of existing Unit Holders who do not wish to exercise their right to acquire additional units.
8.3 Reasons for the OfferThe proceeds of the Offer will facilitate the acquisition and development of real estate development assets as listed below within the objectives of the REIT:
Use of funds Amount (KES)
AcquisitionandDevelopmentofGreenwoodCity 2,200,550,000
Issuance Costs 99,450,000Total 2,300,000,000
More detailed information is provided in Section 18 of this Offering Memorandum.
8.4 Timetable of Principal Events
Event* Date
1. ApprovalfromCMA Monday,February29th 2016
2. Offer Open Thursday, June 23rd 2016
3. Closing Offer Friday,July15th 2016
4. AllotmentandAnnouncement Wednesday,July20th 2016
5. FinaldateforpaymentforUnitstoReceivingBankforapplicationsagainst irrevocable bank guarantees Friday,July22h 2016
6. LatestdateforcreditingofCDSAccounts Wednesday,July27th 2016
7. Listing and Commencement of Trading/Bell Ringing Thursday, July 28th 2016
8.5 Minimum Subscription and Application SizeThe REIT is subject to the receipt of not less than 7 valid applications for the Units.
Furthermore,thereisnomaximumapplicationsizebyanyoneapplicant.TheminimumapplicationsizeperapplicantishoweverKES5,014,000or218,000Units.
The listing will be subject to at least 25% of the Unitsin Issue being subscribed for by parties other than the Promoter, REIT Manager and connected parties.
8.6 UnderwritingThe Offer is not underwritten.
8.7 Basis of Issue PriceThe Issue Price has been determined by the Promoter in consultation with the Lead Transaction Advisor onthe basis of valuation techniques taking into account the following:
(a) Thecountry’smacro-economicoutlook; (b) Appraisalvaluesofthevariousproperties;and (c) Theprojectedcashflows.
* The dates indicated above may be subject to change with the prior approval of the CMA. Any such amendments will be published in the press.
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9 Eligible Assets of the Trust and Activities of the Scheme
9.1 Eligible and permitted assets of the REITThe Eligible Investments in respect of FRED -COMMERCIAL means the assets and investmentsspecified under Regulation 76 of the REITRegulations,including:
(a) Investmentdirectlyineligiblerealestateinaccordance with the Regulations; (b) Investmentineligiblerealestateassetsthrough investment in an investee company incorporated in Kenya which directly owns the eligible real estate and whichiswhollybeneficiallyownedandcontrolledby the trustee in its capacity as the trustee of the D-REITwhere-
(i) TheD-REITTrusteehastheabsolutepowerat any time to appoint and, without incurring any liability, to remove the directors; (ii) TheTrusteeoftheREIT,thecompany,thedirectors and the shareholders have entered into a shareholders’agreement; (iii) TheREITManageroftheD-REITisappointedas the manager of the investments of the investee company; (iv) TheMemorandumandArticlesofAssociationof the investee company and the terms of the shareholders agreement limit the objectives of the investee company and the powers of the company and directors and impose the same obligations on the company, its directors and the manager of the trust as if the investee company wasaD-REITandanauthorizedscheme undertheActandtheRegulationsandwassubject to the same obligations and restrictions as are imposed by the Regulations; (v) TheprovisionsoftheRegulationsonthecarrying out of a valuation, reporting and audit apply to the investee company as if the investee company was aD-REITandanauthorizedschemeunderthe Regulations;
(vi) Theinvesteecompanyinvestsdirectlyintheeligible realestateandisrecordedonthecertificateof titleorcertificateofleaseorregisterasthesoleowner; (c) Investmentineligiblerealestateassetsthroughan investeetrustinwhichthetrusteeoftheD-REITinits capacityastrusteeisthesolebeneficiaryandhas absolute control of voting and right to appoint and removetheTrusteeoftheinvesteetrustandwhere-
(i) TheinvesteetrustisformedundertheLawsofKenyaas an unincorporated common law trust; (ii) TheD-REITTrusteeisalsothetrusteeoftheinvestee trust; (iii) TheREITManageroftheD-REITisalsothemanager of the investee trust; (iv) Thetermsofthetrustdeedfortheinvesteetrustlimit the objectives of the investee trust, the trustee’s powers and impose the same obligations on the trustee and the manager of the trust as if the investee trust was aD-REITandanauthorizedschemeunderthe Regulations and subject to the same obligations and restrictions as are imposed under the Regulations; (v) TheprovisionsoftheRegulationsonthecarryingoutof a valuation, reporting and audit apply to the investee trustasiftheinvesteetrustwasaD-REITandan authorizedschemeundertheActandtheRegulations; (vi) Thetrusteeastrusteefortheinvesteetrustinvests directly in the eligible real estate and is recorded on the certificateoftitleorcertificateofleaseorregisteras the sole owner.
(d) Investmentincash,deposits,bondsorsecuritiesand money market instruments;(e) Investmentinawhollybeneficiallyownedand controlled company which conducts real estate related activities; and(f) Investmentinincomeproducingassetsincludingshares in property companies incorporated in Kenya whose principal business is real estate related or REIT securities in other Kenyan real estate investment trust schemes.
Asset Project Date of Transfer to The Trust
Valuation (Kes) Consideration(Cash / Securities)
100%oftheissued shares in Meru Greenwood Park Limited
Greenwood City located at Meru Town Block I/3
Within180daysofthecloseofFRED-COMMERCIALoffer.
868,858,099* 37,776,440 Units
*this constitutes the value of the real estate and cash held by the SPV as on 28th September 2015
9.2 Assets to be vested in the TrustSubject to the success of this Offer, the following assets will be purchased by the Trust:
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9.3 Initial development and construction of the REIT The REIT intends to undertake such initial development and construction activities as are set out in Section 18.
The following documents relevant to the development are availableforinspection-
(a) ValuationReports-summarieshavebeenoutlinedin Sections 21 and 22 of this Offering Memorandum. (b) TheLegalOpinioninrelationtotransferoracquisitionof theassetsandthetitle-a summary of which is included in Section 39.6. 9.4 Strategy of the REIT Manager in implementing
the objectivesIn implementing the objectives of the Trust, the REIT Manager will pursue a strategy encompassing:
(a) Capital Preservation:TheinvestmentofFRED- COMMERCIAL’sassetswillensurethepreservation of capital; (b) Medium Term Capital Growth: Capital growth with the avoidance of excessive risk over the long term. Short term volatility will be tolerated if appropriate considering the asset class and comparable market index; (c) Return on Investment: The attainment of the agreed investment performance deliverables against the accepted benchmarks over the investment period; (d) Liquidity:Anadequatelevelofliquiditywillbe maintainedtoenableFRED-COMMERCIALtomeet its liabilities and obligations; (e) Diversification: The investment portfolio will bediversifiedtotheextentpossible; (f) Other Matters;
(i) Developmentandconstructionactivitiestobe undertaken and the budget and estimates for undertaking such activities; (ii) Consentsandapprovalstobeobtainedandthe time frame for such; (iii) Thetimeframeoverwhichthetotaldevelopment and construction activities are intended to be conducted; (iv) TheREITManager’sstrategyastosaleorleaseof the completed properties or a combination of both and the time frame until it is anticipated that cash flowswillbegenerated; (v) Includedetailsofanyforeignexchangeexposure, for example, as regards the acquisition of any plant or equipment or building materials; and (vi) IncludedetailsofanyStructuralEngineer’s report or of a Quantity Surveyor or of any Project Manager.
9.5 Permitted non-real estate assets and restrictions on investment and REIT Manager’s strategy as regards such investments
Inadditiontoinvestinginrealestate,FRED-COMMERCIALmayinvestinthefollowing:
(a) Cash,deposits,bondsorsecuritiesandmoney market instruments;
(b) A100%whollybeneficiallyownedandcontrolled company which conducts real estate related activities; and (c) Incomeproducingassetsincluding100%sharesin property companies incorporated in Kenya whose principal business is real estate related or REIT securities in other Kenyan real estate investment trust schemes.
9.6 Investment Policy StatementNotwithstanding anything contained herein to the contrary, theREITAssetsmaybeinvestedonlyinaccordancewiththe following investment guidelines and the Trustee shall not permit any of its subsidiaries, property companies or real-estaterelatedcompaniesorinvesteetruststoconducttheir operations and affairs other than in accordance with the following investment guidelines:
FRED - COMMERCIAL shall undertake investmentactivities in line with the FRED - COMMERCIAL riskmanagement policy guidelines and shall only invest in eligible investments and eligible real estate as permitted for D-REITsbytheRegulations,oranymodificationsthereof.
FRED - COMMERCIAL shall invest its excess fundsin investments conforming to the risk appetite and risk rewardmatrixprovidedthatFRED-COMMERCIALshallnot make, or permit any of its Subsidiaries to make, any investment that could result in the REIT ceasing to qualify asanAuthorizedREITSchemeundertheRegulations.
FIMwill set investment limits which shall be reviewedfrom time to time as per market demands and must conform to the applicable regulations.
No investment shall be made contrary to the provisions of the applicable regulations. In particular:
(a) EligiblerealestateforFRED-COMMERCIALshallbe investment in real estate in Kenya, unless the Regulations otherwise allow in future; (b) Suchrealestatemaybeowneddirectlyorthrough investeecompaniesowned100%bytheTrusteesor investeetrustsofwhichtheTrusteeis100%beneficiary; (c) FRED-COMMERCIALwillnotco-owneligiblereal estate with any other person.
Accounting treatment of investments shall be as per theprevailing International Financial Reporting Standards(IFRS)andInternationalAccountingStandards(IAS).
FRED-COMMERCIALmayinvestinsecuritiesthathavebeen approved by the Trustee and the REIT Manager, and shall include the following:
(a) Investinginincomeproducingprojectsincluding 100%ofthesharesofpropertycompaniesincorporated in Kenya whose principal business is real estate related or REIT securities in other Kenyan real estate investment trust schemes; (b) Investinginawhollybeneficiallyownedandcontrolled company which conducts real estate related activities; and
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(c) Investingincash,deposits,bondsorsecuritiesand money market instruments;
Withinoneyearof thedateof itsauthorization,FRED-COMMERCIALisexpectedtohaveinvestedatleastthirtypercent(30%)ofthetotalassetvaluedirectlyin-
(a) Developmentandconstructionprojects;or (b) IncomeproducingrealestatewhichFRED- COMMERCIALwilldeveloporconstruct.
The Trustee and REIT Manager shall ensure that the real estate acquired or to be acquired as an asset of FRED -COMMERCIAL-
(a) Canbedevelopedinthemannerandforthe proposed use; (b) Isfreefromencumbrancesatthetimeofacquisition except for any charges entered into by the Trustee as authorizedbytheTrustDeedandtheapplicable regulations; and (c) Hasreasonableprospectswhenthedevelopmentor constructioniscompletedforsaleforaprofitor for leasing as income producing real estate.
The Trustee and the REIT Manager shall, where the real estateacquiredisleasehold,ensurethat-
(a) Atthetimeofenteringintothelease,theleasehasa remainingtermofatleasttwentyfiveyears; (b) Therealestatehasbeenvaluedasleasehold;and (c) Theleaseislodgedforregistration.
The REIT Manager shall ensure that investments in cash, deposits, bonds, securities and money market instruments shall be spread across a number of issuers, securities and instrumentssothatnotmorethanfivepercent(5%)ofthetotal asset value is exposed to any one issuer or institution or to members of the same group. This, however, shall not apply to deposits, bonds or securities issued by, or guaranteed by, the Government of Kenya or to deposits with a banking institution licensed in Kenya.
The REIT Manager shall invest in properties that meet the following criteria:
(a) HaveexpectedreturnsonanIRRbasisofatleast20% perannumonagrossbasis(beforefees); (b) Haveindividualprojectdevelopmentcostofatleast KES 400 million; (c) FallintheCommercialRealEstateDevelopments sector; (d) Enhancesectorandgeographicdiversification within Kenya; or (e) Inthecaseofleaseholdland,hasatleast25yearsleft on the lease.
The REIT Manager will in all instances seek to develop real estate properties for sale and use its best endeavours to sell the properties within three years of completion of each development.
If at any point in time the investment spread is not as definedabove,theREITManagermustrectifythisassoonas possible and ensure this does not exceed a period of thirty days from the day on which the limit was exceeded.
The REIT Manager may, with the consent of the REIT Securities Holders, request that the Trustee invest up to a maximum of ten percent of the total asset value in a wholly owned and controlled company carrying out real estate relatedactivitiesincluding-
(a) Propertymanagement; (b) REITmanagement; (c) Propertymaintenanceordesign;or (d) TheprovisionofservicestotenantsortoFRED- COMMERCIAL.
This shall not include the provision of mortgages or financeexcepttotheextentthatFRED-COMMERCIALisauthorizedbytheRegulationstoprovidemortgagesorfinance.
Forthepurposesofdeterminingtheleveloftheinvestmentwhich can be made, the percentage shall be calculated by reference to the amount of the proposed investment and the value of the total asset value at the date that the investment is made.
9.7 Risk Management Strategies to be employed by the REIT Manager
The REIT Manager will maintain a rigorous and robust riskmanagementprocesstoensureallrisksareidentifiedand fully mitigated. Outlined below is a summary of the risk management process.
9.7.1 Internal Risk Management
The objective is to continuously mitigate all extraneous risks i.e., risks that have nothing to do with the market e.g. instance operational risks aided by Quality Audits. TheREIT Manager’s internal methodology toward risk will be based on the following facets:
(a) Independentchecksandcontrolsatalllevelsandacross business units. This is in order to ascertain both accuracy and objectivity, as well as to provide an audit trail that can be reviewed on call; (b) Comprehensiveriskdisclosureandmappingtothe Board of Directors, Regulators and Shareholders. This adds another level to the process, and ensures that overridinglevelsofverificationexist;and (c) Stringentinternalcontrolswherebyeverydecisionof impact not only has to be reviewed by a senior member of the business unit, but is also signed off by at least one member of senior management. This applies on everything from the analysis of funds available for investmenttothepricingprocess.Anaudittrailwill be kept of all the checks for the purposes of periodic audit reviews.
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9.7.2 Independent Checks
AuditorFRED - COMMERCIAL will be audited annually by areputableindependentauditfirmappointedbytheTrustee.TheAuditor shall report onwhether theTrustee and theREIT Manager have complied with the Regulations. The Auditorwillnotbe the sameas theauditorofeither theTrustee or the REIT Manager
TrusteeFRED -COMMERCIAL has appointed aTrustee underthe Trust Deed. The Unit Holders may approve a change of trustee in accordance with the provisions of the Trust Deed and the Regulations.
9.8 Level of Borrowings and the assumed terms and interest rates
The Trustee on behalf of the Trust may borrow amounts withavalueofuptosixtypercentum(60%)oftheTotalAssetValueofFRED-COMMERCIAL.
The Trustee may borrow additional amounts on a temporary basis(fornotmorethansixmonths)ofuptoamaximumofseventy-fivepercentum(75%)ofthetotalassetvaluewiththe prior sanction of REIT Securities Holders by way of an ordinary resolution.
9.8.1 Limitations on Borrowing under the Regulations
Regulation 81 sets out the maximum levels of borrowings byaD-REIT as follows:
“(1)ThetrusteeofaD-REITmay,subjecttoanyrestriction or lesser limit imposed under the scheme documents, borroworenterintofinancingarrangements-
(a) Onitsowninitiativewheresuchborrowingis required to preserve the value of the assets of the trust and is in the best interests of the REIT securities holders; or
(b) IfrequestedtodosobytheREITmanager,togive effect to the objectives of the scheme to acquire real estate assets, to undertake development and construction, to undertake capital expenditure or to refinanceanyexistingborrowing.
(2) The trustee may provide security over the assets of the real estate investment trust and scheme to secure the borrowingsunderparagraph(1).(3) Borrowingsenteredintobythetrusteeonbehalfofa D-REITorbyanyinvesteecompanyorinvesteetrustshall not exceed, in aggregate, at the time the liability is incurred, sixty percent of the total asset value: Provided that the limit in borrowings shall not operate topreventtherollingoverorrefinancingofanydebtwhere theamountrolledoverorrefinancedisnotmorethanthe amount originally borrowed. (4) Despiteparagraph(3),thetrusteemay,withtheapproval of REIT securities holders by way of an ordinary resolution borroworenterintoafinancingarrangementuptoa maximumofseventyfivepercentofthetotalasset value, for a temporary purpose for a term not exceeding six months.(5)Failurebythetrusteetocomplywiththeborrowing limitation under this regulation shall not constitute an offence.(6) Despiteparagraph(5)andwherethetrusteeexceedsthe borrowinglimitsspecifiedinthisregulation-
(a) D-REITmayceasetobeclassifiedasarealestate investment trust scheme for taxation purposes; (b) Subjecttotheschemedocuments,theREITsecurities holders may institute a cause of action against the trustee or the REIT manager; and (c)TheAuthoritymayrevoketheauthorizationissuedtothe REIT under regulation18.”
NB: Material changes can only be made to the objectives and eligible assets of the REIT if authorized by the Act and the Regulations and approved by the REIT Securities Holders
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10 The Trustee
TheBankwasinitiallyregisteredundertheCo-operativeSocietiesAct at the point of founding in 1965.This statuswas retainedup to and until 27th June 2008 when the Bank’s Special General MeetingresolvedtoincorporateundertheCompaniesActwithaview to complying with the requirements for listing on the NSE. The Bank went public and was listed on 22nd December 2008.
Sharespreviouslyheldbythe3,805co-operativessocietiesandunions were ring-fenced under Coop Holdings Co-operativeSociety Limited which became the strategic investor in the Bank witha64.56%stake.
The Bank has three subsidiary companies, namely:
(a) KingdomSecuritiesLimited,astockbrokingfirmwith thebankholdingacontrolling60%stake;(b) Co-opTrustInvestmentServicesLimited,thefund managementsubsidiarywholly-ownedbythebank;and
(c) Co-opConsultancy&InsuranceAgencyLimited (CCIA),thecorporatefinance,financialadvisoryand capacity-buildingsubsidiarywholly-ownedbythebank.
The Bank has offered custodial services to a wide range of retirement funds, collective investment funds and personal investment groups since 2001 and is regulated by the following bodies:
(a) TheCapitalMarketsAuthority; (b) TheRetirementBenefitsAuthority;and (c) CentralBankofKenya(CBK).
The Bank is also regulated under the Central Depositories ActasaCentralDepositoryAgent(CDA)andholdsaCMA licence as a REIT Trustee.
TheCo-operativeBankofKenyaLimited(‘theBank’)isincorporatedinKenyaundertheCompaniesActandisalsolicensedtodothebusinessofbankingundertheBankingAct.
10.1 Senior Management
Name Profile
Dr. Gideon Muriuki, MBS, (51)Group Managing Director &CEO
AppointedManagingDirectorin2001.Joinedthebankin1996asaSeniorCorporateManager then Director, Corporate and Institutional Banking in 1999. Holds a Bachelor ofSciencedegree inMathematics, isaFellowof theKenyaInstituteofBankersandwasawardedanHonoraryDoctorateinBusinessManagement.Hehasover25years’experience in banking and finance. He is also theManaging Director of Co-optrustInvestmentServicesLimitedandCo-opConsultancy&InsuranceAgencyLtd -bothsubsidiariesoftheBank.HeisaDirectorofKingdomSecuritiesLimited,Vice-PresidentAfrica - International Co-operative BankingAlliance (ICBA), Executive CommitteeMemberof theKenyaBankersAssociationandChairman,GoverningCouncilof theAfricaInternationalUniversity.HewasvotedtheCEOOFTHEYEARAFRICA2014by the International Banker.
Rosemary Majala Githaiga, (Mrs), Company Secretary
Shehasover24years’ experienceas a lawyer andprior to joiningCo-opBank in1996,workedforHamiltonHarrison&MathewsAdvocates.SheisanAdvocateoftheHighCourtofKenya,amemberoftheInstituteofCertifiedPublicSecretariesCPS(K)andanAssociateMemberoftheCharteredInstituteofArbitrators.AstheCompanySecretaryoftheCo-opBank Group, she has responsibility for overall provision of legal counsel and company secretarialservices.SheisalsotheTrustSecretaryfortheCo-operativeBankFoundation,thecorporate social responsibility vehicle of the bank. She is also a Director of CIC Insurance Group Limited.
Samuel BirechChiefOperatingOfficer
Hejoinedthebankin2002.SamwasappointedChiefOperatingOfficerinDecember2014and is a career banker with over 20 years’ experience in local and international banks. He has held various senior positions and was previously the Director, Retail Banking for 8 years where he presided over the transformation of the Retail and SME business at the Bank. He iscurrentlyresponsiblefordrivingoperationalefficiencyandexcellenceinsharedservicesto provide frontline teams with seamless delivery systems and processes deriving from his wide experience in overall frontline Business and risk management. He holds a Bachelor of Commerce degree from the University of Nairobi and has attended various local and internationalcourses.HeisaBoardMemberatPanAfricaChristianUniversity.
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Name Profile
Maurice MatumoDirector,Retail&BusinessBanking Division
He joined the bank in 2006. He is in charge of Retail and Business Banking Division of the Bank, responsible for network and business growth with special focus on consumer and SME value creation. He is an experienced banker with 17 years’ experience in Kenya and abroad with a rich and extensive experience in business development, Human capital management and strategicchanneldevelopment.HeholdsaBachelorofArtsdegreeinBusinessManagementfrom Moi University and has attended various local and international courses.
Evelyne MunyokiDirector, Human Resources Division
Shedrivesthebank’sHumanResourcesresponsibleforthePeopleAgendawithaprimaryfocus on performance, talent and employee engagement. She is an experienced strategic HR partner to the Bank’s Business with over 19 years’ experience in HR with six of those years inthebankingandfinancialservicessector.Sheisaprovenprofessionalindevelopmentandexecution of Human Capital strategy, HR Business Partnering, talent management, design and implementation of Employee Engagement initiatives. She holds a Masters Degree in International BusinessAdministration (FinanceMajor) and a Bachelors ofArts in LandEconomics.SheisaCertifiedProfessionalCareerCoachandamemberoftheInstituteofHumanResourcesManagement(K).
Anthony MburuDirector, Credit Management
Acareerbankerwithover22yearsofbankingexperiencebothinKenyaandtheregion.Mostof these years were spent in the line of Credit and Risk Management. He holds a Bachelors degree in Commerce and has attended various proprietary and international Credit courses. HeisalsoaDirectorofKenyaCo-operativeCoffeeExporters(KCCE)Limited.
Patrick NyagaDirector,Finance&StrategyDivision
Has over 22 years’ experience mainly in auditing and banking. Previously served at KPMG (EA),withthemainfocusbeingauditoffinancialinstitutionsandespeciallybanksinKenyaandtheregion.Hethenjoinedmain-linebankingwherehehasworkedforover13years.HeholdsanMBAfromStrathmoreBusinessSchool,aBachelorofCommercedegree inAccounting, is aCertifiedPublicAccountant (K) and amember of ICPAK.He is also aDirector of CIC General Insurance Limited.
William NdumiaDirector, Transformation
Hejoinedthebankin2006.HeisinChargeoftheTransformationofficegivingleadershipto the various transformation initiatives and programs to achieve the bank’s growth and efficiency strategies. He has been in the bank for over 10 years previously as DirectorIT& Innovation,DirectorOperations andHeadBusinessChangemanagement.He is anexperienced banking operations expert having previously worked for international banks in various technical, controls and compliance roles. He holds a Bachelor of Science Degree in Mechanical Engineering and has attended various courses on project management and risk management both locally and internationally. He has overseen execution of various technical projects including the implementation of the core banking system, card management system and a global review of all bank processes among others.
Lydia RonoDirector,Corporate&Institutional Banking Division
She has held many senior positions at the Bank in her 29 years banking experience. She is responsible for crucialbusinessgrowth in theCorporate& InstitutionalBankingdivisionproviding leadership in the various business units under her. She holds a Bachelors Degree in CommerceandanMBAfromUniversityofNairobiandhasattendedvariouscourses.
Vincent MaranguHead,Co-operativesBankingDivision
Joinedthebankin2003andhaswideexperienceinbusinessandfinancialadvisoryworkingwithco-operativesandruralfinancesectorsasHeadofCo-opConsultancyandInsuranceAgencyLtd.Vincenthaskeycompetenciesincorporatefinance,strategicplanning,businessplanning,organizationaldevelopmentandbusinessoperationsreview.Hehasconsultedforco-operativesinKenyaandEastAfricaregionandimplementedmanydonorprojectswithinternational agencies. He holds a Bachelor’s Degree in Economics and Business Studies and isagraduateoftheSchoolofAfricanMicrofinance.HeisamemberoftheAssociationofProfessionalCo-operators(APC),Kenya.
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The compliance officer details:
Name Profile
Amos MwitaHead, Compliance Department
Amos is responsible for coordinating the management of the bank’s Compliance Risk.i.e. implementation and maintenance of the Compliance policy and function, Know your customer(KYC),AntiMoneyLaunderingandCounterTerrorismfinancingPolicies.Hehasover15yearsofbankingexperienceasanOperationalefficiencyandMonitoringexpertatCo-operativeBankofKenya.
10.2 Co-operative Bank’s Role as TrusteeSubject to the provisions of the Trust Deed, the Regulations andtheAct,theTrusteeshallhaveallpowersnecessarytoprotect the interests of Securities holders in terms of the Act, theRegulations and theTrustDeed and shall, saveas otherwise provided in the Trust Deed, have authority necessary to carry out the function and purposes of the TrusttosecurethefulfilmentoftheobjectsoftheREIT.Inparticular, the Trustee shall:
(a) ActinaccordancewiththetermsoftheTrustDeed, theschemedocuments,theActandtheRegulations;(b) ActhonestlyandinafiduciarycapacityasTrusteein the best interests of the REIT Securities Holders as beneficiariesoftherealestateinvestmenttrust and the Trustee’s discretions;(c) FulfilltheobligationsanddutiessetoutintheTrust Deed, the scheme documents and in conformity with the Regulations;(d) Actinaccordancewithanyotherlawapplicableto Trustees,includingtheTrusteeAct;(e) Maintaincustody,holdandprotectalltheassetsofthe real estate investment trust, ensure they are held in the name of and where registration is provided for are registered in the name of the Trustee and if required in the name of any secondary disposition trustee and ensurethatallthenecessaryfilingsandregistrations are recorded, undertaken and maintained;(f) Protectinterestsoftherealestateinvestment trust in any asset;(g) Ensurethattheassetsare:
(i) Clearlyidentifiedastheassetsofthetrust and the scheme; (ii) Heldseparatelyfromanyotherassetsofthe Trustee and of any secondary disposition trustee and any other trust, scheme or person; (iii) NotincludedintheaccountsoftheTrustee;and (iv) Notcharged,pledgedordealtwithexceptin accordance with the provisions of the Trust Deed, theActandtheRegulations.
(h) AppointtheREITManagerand,ifnecessary,to protecttheinterestsofbeneficiaries,removetheREIT Manager and appoint a substitute REIT Manager;(i) ActastheREITManageronatemporarybasisin any period where there is no other REIT Manager until a new REIT Manager is appointed;(j) SupervisetheactivitiesoftheREITmanagertoensure that they comply with the terms of the scheme documents,theActandtheRegulations;(k) NotdelegatetotheREITManagerexceptifappointed bytheAuthorityasasecondarydispositiontrusteeor toanyotherpersonnotbeinganofficeroremployee of the Trustee any function of or involving:
(i) SupervisionoftheREITManager;or (ii) Thecustodyorcontroloftheassetsofthescheme;
(l) Ensurethat:
(i) Thefundandtheassetsoftheschemeareinvested
Name Profile
Robert Morris AlooTreasurer
He joined the bank in 2013. He has over 10 years’ experience in Treasury management. He is responsibleforthebanksTreasurymanagementandgrowthobjectives.PriortojoiningCo-operative Bank of Kenya, he worked as Head of Treasury in KCB Bank Uganda Ltd. He holds anMBAinFinancefromUSIUAfricaandaBachelorsofArtsDegreeinLandEconomicsfromtheUniversityofNairobi.HeisaCertifiedPublicAccountant(K)andamemberofICPAK.HeisalsoamemberofTheFinancialMarketsAssociationofKenya(ACIKenya).
Edgar MwandawiroChiefRiskOfficer
He joined the Bank in January 2016. He has over 17 years banking experience mainly in risk managementandbankingoperations.HepreviouslyworkedforCommercialBankofAfricafor10years.PriortojoiningCo-opbank,heworkedatGulfAfricanBankforsevenyearsastheHeadofRisk.HeisaholderofMastersDegreeinInternationalBankingandFinancefrom Birmingham University, England and Bachelor of Commerce degree from University of Nairobi. He has attended various risk management trainings both locally and internationally.
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in accordance with the terms of the Trust Deed, theActandtheRegulations; (ii) Incomeoftheschemeisappliedinaccordance with the terms of the scheme documents; (iii) Assetsoftherealestateinvestmenttrustwhichare insurable are insured and valued as required by the schemedocuments,theActandtheRegulations; (iv) Allpaymentsanddistributionsmadeoutofthe assets of the scheme are made in accordance with thetermsoftheschemedocuments,theActand the Regulations; (v) Anyborrowinglimitationssetoutinthescheme documents,theActandtheRegulationsare complied with;
(m)Actinthebestinterestsofthebeneficiariesandifthere isaconflictbetweentheinterestsoftheTrusteeand thoseofanybeneficiary,thentheTrusteeshallgive priority and preference to the interest of the Beneficiary;(n) Notmakeuseofconfidentialinformationacquired when acting as the Trustee to gain an improper advantage for itself or for another person or to cause detrimenttoaBeneficiary;(o) TheTrusteeshallactinaccordancewiththe instructions of the REIT Manager provided that the instructions are:
(i) InaccordancewiththetermsoftheTrustDeed and any prospectus or Offering Memorandum; (ii) InaccordancewiththeprovisionsoftheActor these Regulations and the law relating to Trusts and Trustees, (iii) IntheTrustee’sopinionisinthebestinterestsof the REIT Securities Holders.
(p) TheTrusteehaspowertoappointvaluers,lawyers, accountants and other professionals for the purpose of permitting it to carry out its duties and perform its obligations and shall charge the fees, cost and expenses of such as an expense to the REIT.
All legalproceedingswhichmaybe institutedbyoragainst the REIT shall be instituted by or against the Trustee in its capacity as such, and the Trustee shall have the power and be capable of instituting, prosecuting, intervening in or defending any legal proceedings of whatsoever nature relating to or concerning the REIT or its affairs and as a prerequisite to such action, to require the REIT Manager to indemnify it against all costs and expenses thereby incurred. The Trustee shall in no way be liable to make any payment hereunder to any Securities Holder except out of any funds held by or paid to it for that purpose under the provisions hereof.
The Trustee shall cause a valuation of the real estate assets of the trust to be conducted and ensure that other assets of the trust are appropriately valued:
10.3 Trustee’s Power to Borrow on Behalf of the Trust and Charge or Pledge Assets as Security
10.3.1 Trustee’s powers under the Trust Deed to borrowThese are set out in Clause 19 of the Trust Deed as follows:
19.1 The Trustee may enter a borrowing arrangement-
19.1.1 on the initiative of the Trustee where such borrowing is required to preserve the value of the REIT Assets and is in the best interests of the REIT Securities Holders; or19.1.2 If requested to do so by the REIT Manager to give effect to the objectives of the scheme to acquire real estate assetsortoundertakecapitalexpenditureorrefinance an existing borrowing.19.2 The Trustee may provide security over the REIT Assets to support borrowings under Clause 19.1.19.3 Notwithstanding the provisions of Clause 19.1 and 19.2, the Trustee shall ensure that any borrowing or provision of security is not prejudicial to the interests of the REIT Securities Holders.19.4 The total borrowings entered into by the Trustee on behalf of FRED - COMMERCIAL or by any investee company or investee trust shall not exceed, in aggregate, at the time the liability is incurred, sixty per centum (60%) of the Total Asset Value of FRED - COMMERCIAL; Provided that:-
19.4.1 This limit shall not operate to prevent the rolling over orrefinancinganydebtprovidedthattheamount rolledoverorrefinancedisnotmorethantheamount originally borrowed, and
(a) Priortoacquisitionordisposalofanyasset;(b) PriortotheinitialissueorofferofanyREITsecurities except where the issue or offer is made to the promoter or to connected persons;(c) Onanannualbasisorshorterperiodasisnecessaryto enable the trustee and or the REIT manager to prepare the reports required to be prepared under the Trust Deed, theActortheRegulationsortofulfillitsobligations as trustee;(d) IftheauditororREITSecuritiesHoldersrequest;and(e) Atanyothertime,iftheTrusteeortheREITmanager or the auditor is of the opinion that it is desirable in the interests of the REIT securities holders that a valuation be conducted or that there has been a material change that may result in the then current valuation being incorrect.
Save as disclosed herein, the Trustee does not have any potentially conflictingnorcompetingrolesnoranycurrentpendingorthreatenedlitigation whichmightmaterially affect the resources or financialcapacityoftheTrusteetofulfilitsroleorresponsibilitiesasthetrusteeof the REIT.
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10.3.3 Circumstances in which REIT Securities Holder may be required to vote to approve a borrowing by the Trustee
ThisissetinClause19.4.2oftheTrustDeed.Whenthetrustee seeks to borrow an amount greater than sixty per cent(60%)ofthetotalassetvalue,theTrusteemustobtainthe prior sanction of REIT Securities Holders by way of an ordinary resolution. This borrowing is restricted to a maximumof seventy-fivepercentum(75%)of the totalasset value and is to be used for a temporary purpose for a term not exceeding six months.
10.3.4 Implications of the Trustee exceeding the limits in the Act or Regulations or the limits set out in the Trust Deed
TheseimplicationsaresetoutinRegulations81(5)and(6)oftheRegulationsandinClause19.5oftheTrustDeed.Insummary,anynon-compliancewiththeborrowinglimitationshallnotresultinabreachoftheActortheRegulationsandshall not constitute an offence but may result in-
(a) TheD-REITceasingtobeclassifiedasarealestate investment trust scheme for taxation purposes; (b)Subjecttotheschemedocuments,theREITSecurities Holders having a cause of action against the Trustee or the REIT Manager; and (c)RevocationofauthorizationoftheREITbythe Authority.
19.4.2 The trustee may borrow on its own initiative or on the recommendation of the REIT manager up to a maximumofseventy-fivepercentum(75%)ofthe total asset value with the prior sanction of REIT Securities Holders by way of an ordinary resolution for a temporary purpose for a term not exceeding six months.19.5 Any non-compliance with the borrowing limitation under this Regulation shall not result in a breach of the Act or these Regulations but may result in-19.5.1 TheD-REITceasingtobeclassifiedasarealestate investment trust scheme for taxation purposes; 19.5.2 Subject to the scheme documents, in the REIT Securities Holders having a cause of action against the Trustee or the REIT Manager; and19.5.3 Revocation of authorization of the REIT by the Authority.19.6 The Trustee shall be entitled to limit its liability for any borrowing to the assets of the Trust and subject to the provisions of the Act, Regulations and the law relating to trusts and Trustees shall entitled to be indemnifiedoutoftheassetsoftheREITforalllosses, expenses, fees and charges incurred in the performance of its duties and obligations.”
10.3.2 Limits contained in the Act or Regulations on the Trustee’s Powers
The Regulations limit the Trustee’s powers to borrow in Regulation81(3)and(4)asfollows:
(3) Borrowings entered into by the trustee on behalf of a D-REIT or by any investee company or investee trust shall not exceed, in aggregate, at the time the liability is incurred, sixty percent of the total asset value: Provided that the limit in borrowings shall not operate topreventtherollingoverorrefinancingof anydebtwheretheamountrolledoverorrefinancedis not more than the amount originally borrowed; and(4) Despite paragraph (3), the trustee may, with the approval of REIT securities holders by way of an ordinaryresolutionborroworenterintoafinancing arrangementuptoamaximumofseventyfivepercent of the total asset value, for a temporary purpose for a term not exceeding six months.
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11 The Promoter
11.1 OverviewFusionCapitalLimitedisahybridbusinessfinancingandprivate equity house, designed around the needs of local businesses in the emerging economies of East and Central Africa. Fusion Capital has presence in Nairobi, Kigali,Kampala and Dar es Salaam. The Company is focused onopportunitiesintheEastAfricanmarketplace,buthasplans to expand to the Great Lakes region and beyond as its capital base expands.
11.2 Investment PrinciplesFusionCapitalisbuildingscalebyremainingclosetoitschosen marketplace. The Company lives where it invests, creating a unique pipeline of opportunities from research and a network of local contacts. Successful investment outcomes are about good judgment, good relationships and good systems. This quality-first approach is serving theCompany well.
FusionCapitalachievestheaboveby:
(a) Rigorouslyanalyzingtheriskinanyinvestmentand performing appropriate due diligence; (b) Keepingitreal,andinvestingonlywherecommonsense supports the results of analysis; (c) InvestingonlywhereFCLbelievesthefundamentals of management, environment and performance are attractive; (d) StickingcloselytotheInstitutionalLimitedPartners AssociationGuidelines,includingazerotolerance approach to corruption; (e) Givingitspeoplegoodtraining,astimulatingworking environment,andfinancialrewardsalignedwithits investors’ interests; (f) InvestingonlywhereFusionCapitalhasgenuine local insight; (g) Ensuringthatdealsarelegallyexecutedwithrigour and intelligence; and (h) Realisingthatitisnotjustaboutputtingmoneyinand waitingforanexitopportunity:FusionCapital’sview is that growth needs to be mentored and overseen throughout the life of the investment.
FusionCapital’srealestatefinancingprogrammeincludesamounts from $3,000,000 to $20,000,000. All acrossthe region, Fusion is financing the development of thebuildings which dynamic economies need: from affordable housing,toluxuryresidentialdevelopmentstoofficeblocks,
Name Number of Shares held
FusionInvestmentsLimited 1,485,799
TheTrustees–FusionCapitalEmployee Share Ownership Plan Trust
86,850
Luke Mwiti Kinoti 78,149
Mary Kathambi Kinoti 61
ConstantineAkilimaliMalai 30
Total Issued Shares 1,650,889
warehousing and factories. Fusion invests throughwell-triedSpecialPurposeVehicle (SPV)structures,normallyhaving a controlling interest and working closely with real estate entrepreneurs.
11.3 Shareholding Structure
11.4 Board of Directors
Name Position
Dr. Philip Goodwin Chairman(Executive)
Luke Kinoti ChiefExecutive(Executive)
Susan Kagundu GroupFinanceDirector(Executive)
Daniel Kamau Director,RealEstate(Executive)
Constantine Malai Director(Non-Executive,Independent)
Dr. James Mageria Director(Non-Executive,Independent)
Kimathi Kamencu Director(Non-Executive)
Nelly Mbugua Director(Non-Executive)
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11.5 Senior Management
Name Profile
Luke KinotiGroup Chief Executive
LukehadtheoriginalvisionforFusion:aninstitutionwhichwoulddirectlyaddresstheunder-servedcapitalneedsofgrowingbusinessesinthevibrantEastAfricanregion.HeistheChiefExecutiveofFusionCapital,thePromoterofFRED-COMMERCIALandisaco-founderoftheFusionGroupof companies,whichcomprises subsidiariesofferingfinancial and investment services inprivateequity, real estate, private wealth management, pension management and insurance for local and internationalinvestors.HehasoverseenthegroupexpansioninEastAfricaoverthelast10years.
Luke’scareerembracesover30yearsofbusinessfinancing,investmentmanagementandstrategyimplementation, mentoring, training and development of executives serving the sector. In the past, he has held various senior leadership positions in development and SME/Microfinance lendinginstitutionsincludingAfricanMedicalandResearchFoundation(Kenya),EcumenicalChurchLoanFund(ECLOF)andNationalCouncilofChurchesofKenya(NCCK).
LukeisagraduateoftheUniversityofNairobi(MathematicsandStatistics).Heisalsoamemberofthe Institute of Directors and sits on various Boards.
Susan KagunduExecutive Director, Finance&Operations
SusanoverseestheGroupFinanceDepartmentresponsibleforpreparing,analyzinganddisseminatingfinancialinformationtovariousstakeholders,andmanagingtheGroup’sfunds.SheisresponsibleforfinanceandtaxmattersforFRED-COMMERCIAL.
Susan is aCertifiedPublicAccountantwithover15years’ experience infinancial reporting andmanagementaccounting.ShewaspreviouslytheFinanceManagerforMelchizedekHospital,andDeputyHeadofFinancefortheKarenHospital.
SusanisaBachelorofCommerce(Finance)graduatefromtheCatholicUniversityofEasternAfrica,amemberoftheInstituteofCertifiedPublicAccountantsofKenya,aMemberoftheWomenonBoardsNetworkandanAssociateoftheInstituteofDirectors.SusanisaDirectoronvariousSPVBoards.
Daniel KamauExecutive Director, Real Estate
Daniel heads the Real Estate team responsible for all aspects of real estate investment in the East Africanregion.HehasadeepunderstandingoftheEastAfricanpropertymarketanddevelopmentprocess from acquisition to investment exit through his involvement in transactions in the commercial, residential, retail and hospitality sectors. He is responsible for overseeing the development and constructionactivitiesoftheProjecttobeundertakenbyFRED-COMMERCIAL.
DanielrepresentsFusioninvariousSPVsasaDirectorandhasbeeninstrumentalinsuccessfullysourcing,negotiating,structuringandundertakingduediligenceforFusion’srealestateinvestments,currently managing and overseeing a portfolio of over USD$ 200 Million. His previous position was asHeadofPrivateEquityandBusinessDevelopmentatFusionCapital,overseeingawiderangeofdealsinthefinancialservicessector,FMCG,agribusinessandothers.PriortothatheworkedasanAuditAssistantforThumbiNganga&Associates.
DanielisadoublemajorBachelorofCommerce(Accounting&BusinessAdministration)graduatefromDaystarUniversity,andisinhisfinalstagesofhisMasterofBusinessAdministration(Finance).
Lydia KariukiHead of Governance, Risk and Compliance
Lydiaoverseeslegal,governance,riskandcompliancemattersfortheFusionGroupandisresponsibleforregulatoryreportingforFRED–COMMERCIAL.
SheisaCertifiedPublicSecretaryandanAdvocateoftheHighCourtofKenya,withover10years’experienceincorporateandcommercialpractice.Sheisalsocertifiedasacomplianceandcorporategovernanceprofessional.ShepreviouslyworkedasaSeniorAssociateAdvocateatNyachotiandCompanyAdvocates,overseeingtheconveyancingandcommerciallawdepartments.
Lydia is aMemberof theLawSocietyofKenya, the Institute ofCertifiedPublicSecretaries ofKenyaandtheInstituteofDirectors.SheisalsoanAssociateoftheCharteredInstituteofArbitratorsandtheInstituteofHumanResourceManagement-Kenya.LydiaiscurrentlywritingherthesesfortheawardofaMasterofBusinessAdministration(MBA)degreeattheStrathmoreBusinessSchool.
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Name Profile
Bethuel MutaiInvestment Manager, Real Estate
Bethuel Mutai is an Investment Manager with the Fusion real estate investment team. He isresponsibleforon-the-groundco-ordinationofprojectserviceprovidersandconsultantstoensuretimelyandefficientdeliveryofprojects,andparticularlytheProjecttobeundertakenbyFRED-COMMERCIAL.
Bethuelisinvolvedindealsourcing,structuringandmanagementofFusionrealestateprojectsacross theEastAfrican region, and has demonstrated value in the successful execution of thereal estate portfolio worth over US$200 Million. He was previously involved in the successful execution of large-scale commercial, residential, retail andmixed use development projects atAcornGroup.
HeholdsanMBAinFinanceandInvestmentfromtheUniversityofNairobi-SchoolofBusinessandaBachelorofScienceinConstructionManagement(FirstClassHonours)fromJKUAT.HeiscurrentlypursuinghisCharterinAlternativeInvestments’Management.
Charity KirimaInvestment Manager, Real Estate Project Accounts
CharityisanInvestmentsManagerwiththeFusionrealestateinvestmentteam.SheisresponsibleforProjectAccountsandoverseesSPVProjectAccountants.Sheisalsoinvolvedindealsourcing,structuring,projectfinancialmonitoring,financialmodellingandreporting.
Charity previously worked as a Private Equity InvestmentAnalyst for Fusion Capital and wasinvolved in fund management as an Investment Banker at Dyer and Blair Investment Bank Limited.
She holds an MBA (Finance) from the University of Nairobi, a Bachelor ofArts in Education(Mathematics&BusinessStudies)fromKenyattaUniversityandisaCertifiedPublicAccountant.
James MacleanInvestment Manager, Fundraising
HehasworkedwiththeFusionGroupintheUnitedKingdom(UK),withshortstintsinKenya,forthe past seven years.
HestartedoutasaloanofficerworkingintheFusionPrivateEquityandSMEdepartment.IntheUK,Jameswasresponsible for investor relationsandreporting.Hedesigned theFusionPortfolioManagementService,whichprovidesaccesstoinvestmentsofallkindsinEastAfricaandbeyondforprofessionalinvestors,throughaFinancialConductAuthority-regulatedInvestmentManager.Jameswasalsoinstrumentalinidentifying,structuringandclosingsuccessfulfundraisesundertheFusionAfricanAccessLimitedPartnership(FAALP)Fund.HeiscurrentlyresponsibleforfundraisingforFusionrealestateprojectsintheUK,includingstructuringandpromotingFRED-COMMERCIAL.
He is a Bachelor of Science in Economics graduate from the University of Bath in the UK and also holdsaCF30qualificationfromtheCharteredInstituteofSecuritiesandInvestments.
Mutindi NdambukiSales&MarketingManager
Mutindi is the Sales & Marketing Manager for the Fusion Group, responsible for leading andcoordinating project sales activities, managing the Group’s communication and public relations aspects,marketing research, event planning andmedia relations. She is anAccreditedCharteredMarketer with eight years’ experience.
MutindipreviouslyworkedasaBusinessAdvisorinFusion’sPrivateEquityandSMEdepartmentandasaMarketingandCommunicationsOfficerintheInvestorRelationsdepartment,responsibleforimplementing and managing investor communication and marketing strategies.
SheholdsaBachelorofCommerce(Marketing)fromDaystarUniversityandisaccreditedbytheChartered Institute of Marketing.
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FusionCapitalhasthefollowingresourcesandexperiencein the conduct of development and construction activities:
(a) Adedicatedteamofrealestateinvestment specialists,tasked with the following responsibilities
(i) Identifyingrealestateinvestmentprospects; (ii) Screeningtheprospectsforinvestment suitability; (iii) Structuringandnegotiationofinvestment terms;
11.6 Resources and experience in the conduct of development and construction activities
(iv) Structuringandmanaginginvestmentvehicles; (v) Raisingfundingneeded; (vi) Procuringprofessionalservicesforpreparatory, developmentandpost-developmentphases; (vii) Project management during the development phase; (viii)Managingexits(throughsales).
(b) Over5years’experienceinvestingandmanaging investments in real estate in Kenya, and the wider East Africa.Adescriptionofprojectsundertaken,orinthe process of development, is outlined below:
Project /SPV Location Brief Description Estimated project Value
(KES)FlamingoTower Limited
Nairobi, Kenya • GradeAfinishofficedevelopment• On Mara Road, Upperhill area• 149,000squarefeetoflettablespaceand235parkingbays• Atotalof18levels• Model:Build-lease-selltoyieldinvestor
1,300,000,000
Upward Scale Investment Company Limited
Nairobi, Kenya • GradeAfinishofficedevelopment• On4thNgongAvenue,‘Community’area• 183,000 square feet of lettable space and 278 parking bays• Overatotalof25levels• Allofficespaceandparkingspacestobesold
1,500,000,000
Hand in Hand Limited
AthiRiver,Kenya
• Residential accommodation development, 3 bedroom maisonnettes
• Targeted at the middle income market• Ofthetotal209unitdevelopmentFusionwasinvolvedin
phase2(82units)• Build to sell model
600,000,000
Grande Park Estate Limited
Nakuru, Kenya • Residential housing development, consisting of 3 bedroom apartments
• Targeted at the middle income market• Atotalof64units,in2phases.Phase1:32units,and
Phase 2:32 units• Kiamunyi,Olive-Innarea• Build to sell model
272,000,000
Name Profile
Michelle SmallDirector,FusionInvestment Limited
MicheleisaDirectorofFusionInvestmentLimited,theholdingcompanyofFusionCapitalLimited.Sheisaseasonedrealestateprofessionalwho,untilJuly2012,wasanActingDirectorofthePropertyandTourismteamattheEuropeanBankforReconstructionandDevelopment(EBRD).
Michelle represented the EBRD on the Investment Committees and Supervisory Boards of real estate funds and property companies where EBRD had invested and still represents them on one such investment committee.Shehas extensiveknowledgeof theCentral andSouth-Eastern real estatemarketsandoverthelasttwoyears,hasalsobeenworkingwithFusionCapitalintheEasternAfricanmarkets(Kenya,Uganda,Rwanda,TanzaniaandBurundi),asanIndependentPropertyConsultantwith MS Commercial Real Estate Capital Limited.
Real Estate Consultant:
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Project /SPV Location Brief Description Estimated Project Value
(KES)
11.7 Minimum regulatory investment to be maintained by the Promoter
(a) APromoterwhosellsortransfersanyrealestateor proposes to transfer or sell any real estate to the trustee oftheD-REITwithinaperiodoneyearofthe establishmentoftheD-REITshallmaintainan investmentofatleast10%oftheirinvestmentfortwo years from the close of the initial offer or if the issue is tobelistedfromthedateoffirstlistingoftheREIT Securities. The REIT Securities held by the Promoter shall not be sold or transferred during the lock in period except where the transfer is as a result of the death or insolvency of the Promoter;(b) APromotermay,afterthesecondanniversaryof the close of the initial offer or issue, reduce its holding tozeropercent;(c) TheTrusteeshallnotregisteranytransferbythe Promoter, if the transfer results in the Promoter holding REIT Securities which are below the minimum level the Promoter is required to retain during the lock in period.
11.8 Relationship between the Promoter, REIT Manager and the Owners of the Asset to be transferred
Fusion Capital Limited (the Promoter) is the holdingcompanyofFusionInvestmentManagementLimited(theREIT Manager). Fusion Capital Limited is a registeredshareholderofMeruGreenwoodParkLimited,theSPVtobetransferredtotheREIT.FusionCapital’sshareholdingin Meru Greenwood Park Limited is held in trust ultimately on behalf of Fusion African Access (2011) LimitedPartnership (FAALP), a closed-ended Fund registeredunder law of Guernsey as Number 1440.
Nelly Mbugua, a Director of the Promoter, is also the ManagingDirectorofCitiscapeValuers&EstateAgencyLimited, the Property Manager.
11.9 Promoter’s capacity to fund cost overruns
The Promoter may, but has no obligation to, fund cost overruns. In the event that any unscheduled cost overruns are funded, additional securities will be issued to the Promoter for the same. Any other structure of fundingcosts overruns will be discussed with and approved by the Trustee.
Mtwapa Starehe Homes Limited
Mtwapa, Kenya
• Residential housing development, composed of 3 bedroom apartments
• Targeted at the middle income market• Atotalof90units• Located at the northcoast, next to La Marina Restaurant• Build to sell model
1,200,000,000
Kigali Heights Development Co. Limited
Kigali, Rwanda • GradeAfinishmixeduse(officeandretail)development• Located on Kimihurura Roundabout, adjacent to the Kigali
Convention Center• 335,000squarefeetoflettablespace• Allspacetobelettotenants,andsoldtoasingleyield
investor
3,706,000,000
Goldmark Properties Limited
Kampala, Uganda
• A16unitfullyservicedapartmentdevelopment• Provides rental units both for short and long term stay• Bukoto area
300,000,000
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12 The REIT Manager
12.1 OverviewFusion Investment Management Limited (FIM) wasincorporated on 19th October 2011 as a private limited liabilitycompanyunderChapter485AofLawsofKenya.ThecompanyisregisteredasnumberCPR/2011/58835.
Fusion Investment Management Limited is a specialistfundmanager,focusedonmobilizingfinanceforAfricandevelopment.BasedinNairobi,Kenya,FIMprovideswellmanaged, controlled exposure to investment opportunities ofallkinds,withafocusonAfrica.FIMservicesinvestorswithinAfricaaswellas thoseinvestingfromoutsidethecontinent.FIM’smissionistoprovideattractiveandwellmanaged vehicles and mechanisms to mobilize capital,both domestically and from abroad, with the emphasis on good returns and controlled risk. FIM raises capitalfrominvestors indevelopedcountriesand inAfrica,andinvestsitforastrongcommercialreturnintheEastAfricanRegion.
FIMisaKenyanCapitalMarketsAuthority(CMA)licensedFundManagerandREITManager, and is a member of the FusionGroupofcompanies.
12.2 Products and ServicesFIMprovides investorswith thoughtful,well consideredand well managed investments, with a geographical focus onEastAfrica,organizedinfourmaincategories:
(a) RealEstateDevelopment (b) PrivateEquity (d) MoneyMarkets (d) ListedSecurities
FIMoperates through either fully discretionary funds orthroughsemi-discretionaryPortfolioManagementService(PMS)accounts.
12.3 Board of DirectorsTheFIMBoardismadeupofexperiencedandindependent-minded individuals of varied backgrounds. The Board’s role is to advise the management team on the strategic direction of investment, to open doors for the company usingmembers’high-levelcontacts,andtoadviseonanymajor conflicts of interest or fundamental policy issueswhich arise in the course of investment activity.
Name Profile
John G MsafariChairman (Non-Executive,Independent)
JohnisanIndependentDirectorandtheChairmanoftheFusionInvestmentManagementBoard.HeisalsoaBoardDirectorofEastAfricanSeaFoodLtd,KenyaandKarmicFoodsLimited-Uganda JohniscurrentlytheAdministrativeDirectorofAlphaGroup,aconglomerateofcompaniesoperatinginSubSaharanAfricaandGulfcountries. John served as a Board Director of the Central Bank of Kenya and the Kenya School of Monetary Studies from2011to2015.Healsoservedas theCommissionerGeneralof theKenyaRevenueAuthority(KRA) from1998 to2001. Internationally,hehas servedas theCommissionerGeneralDesignateoftheGambiaRevenueAuthorityandlateranAdvisortotheCommissionerGeneralwherehewasinstrumentalinsettinguptheGambiaRevenueAuthorityandreviewingthedraftingoftheGambiaCustoms&ExciseBill,2008,amongotherassignments.In2009,hewasawardedCommanderoftheNationalOrderoftheRepublicoftheGambia(CRG)inrecognitionandappreciationoftheexemplaryLeadershipandServicetoTheGambiaRevenueAuthority.HehasservedasChiefExecutiveoftheOceanFreightGroupofcompanies,aswellasaBoardMemberoftheKenyaPortsAuthority,KenyaInternational Freight &WarehousingAssociation and the Kenya ShipsAgentsAssociation. JohnholdsaBachelorofCommerce(BusinessAdministration&Marketing)degreeandisaFellowoftheInstituteofCharteredShipbrokers(FICS).
Dr. Philip GoodwinDirector(Executive)
Dr.PhilipGoodwinsawthepotential inEastAfrican investmentmarketsasearlyas2005,andisFusion’sFoundinginvestoraswellasChairmanoftheprincipalGroupofCompanies. Philisresponsible for the overall strategic direction of the Group, performance of the Board, performance of the portfolio and fund raising.
Philhas35yearsinprivateequityinvestment,predominantlyintheUK,butalsoinotherpartsofEurope,Japan,andAfrica.
His early and formative career was spent at 3i, after which he moved to HSBC Private Equity and co-led themanagement buy-out in 2002,whenHSBCPrivateEquity becameMontaguPrivateEquity.
Phil holds a Masters from Oxford University and a Doctorate from Manchester University.
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Name Profile
Luke KinotiChief Executive (Executive)
LukehadtheoriginalvisionforFusion:aninstitutionwhichwoulddirectlyaddresstheunder-servedcapitalneedsofgrowingbusinessesinthevibrantEastAfricanregion.HeistheChiefExecutiveofFusionCapital,thePromoterofFRED-COMMERCIALandisaco-founderoftheFusionGroupofcompanies,whichcomprisessubsidiariesofferingfinancialandinvestmentservicesinprivateequity, real estate, private wealth management, pension management and insurance for local and internationalinvestors.HehasoverseenthegroupexpansioninEastAfricaoverthelast10years.
Luke’scareerembracesover30yearsofbusinessfinancing,investmentmanagementandstrategyimplementation, mentoring, training and development of executives serving the sector. In the past, hehas held various senior leadership positions in development andSME/Microfinance lendinginstitutionsincludingAfricanMedicalResearchFoundation(AMREF),EcumenicalChurchLoanFund(ECLOF)andNationalCouncilofChurchesofKenya(NCCK).
LukeisagraduateoftheUniversityofNairobi(MathematicsandStatistics).Heisalsoamemberof the Institute of Directors and sits on various Boards.
Gladys MboyaDirector (Non-Executive,Independent)
GladysisaNon-ExecutiveDirectorontheBoardofFusionInvestmentManagement.SheisanAdvocateoftheHighCourtofKenyaandistheManagingPartnerofMboyaWangong’u&WaiyakiAdvocateswithover20years’experienceinCorporateandCommercialpractice.GladysadvisesonCorporateandCommercialtransactionsincluding;Bonds,Banking&Finance,jointventuresand Capital Raising. She also advises on the Structuring of Commercial Real Estate Property DevelopmentsandtheRealEstateInvestmentTrusts(REITS).
SheholdsaMaster’sdegreeinBusinessAdministration(MBA)fromtheUniversityofWarwick(UK),aBachelorofLawswithHonoursdegree(LLB)fromtheUniversityofWales,Aberystwyth(UK)andaDiplomainLawfromtheKenyaSchoolofLaw.
SheisamemberoftheLawSocietyofKenya,CharteredInstituteofArbitratorsandInstituteofCertifiedPublicSecretariesofKenya.
Charles MbuiDirector (Non-Executive,Independent)
CharlesisaNon-executiveDirectorontheFusionInvestmentManagementBoard.Heisamarketingandgeneralmanagement specialistof longexperiencehavingworked forvariousorganizationsbothlocallyandabroad.HeiscurrentlytheManagingDirectorandChiefExecutiveOfficerofChaiTrading Company Limited. He was previously the General Manager, Sales and Marketing of the KenyaTeaDevelopmentAgency(KTDA)andearlieronworkedinUgandaasGeneralManager,MastermindTobacco(K)Limitedbeforethat.OthercompanieshepreviouslyworkedforincludeCaltexOil(K)LimitedandPanAfricaInsuranceCompanyinSalesandMarketingpositions.
CharlesholdsaMasterofBusinessAdministration(Marketing)degreefromtheJomoKenyattaUniversity ofAgriculture and Technology (JKUAT), and a Bachelor of Commerce (BusinessAdministration) degree from theUniversity ofNairobi.He also holdsPostGraduate degree inBusiness Management from the University of South Africa (UNISA), Diploma in AdvancedManagement Programme (AMP) from Strathmore Business School /IESE Barcelona BusinessSchool-Spain.
Charles is currently reading for a PhD in Business Management and is a member of the Kenya Institute of Management and the Institute of Directors.
12.4 Senior ManagementFusionInvestmentManagement’sstrengthisthedepthandbreadthofitsexecutivemanagementteamandprofessionalstaff.Themanagement team is made up of the following:
Name Profile
Luke KinotiGroup Chief Executive
LukehadtheoriginalvisionforFusion:aninstitutionwhichwoulddirectlyaddresstheunder-servedcapitalneedsofgrowingbusinessesinthevibrantEastAfricanregion.Heis theChiefExecutiveofFusionInvestmentManagement, theREITManagerofFRED-COMMERCIALand isaco-founderof theFusionGroupofcompanies,whichcomprisessubsidiariesofferingfinancial and investment services in private equity, real estate, private wealth management,pension management and insurance for local and international investors. He has overseen the groupexpansioninEastAfricaoverthelast10years.
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Name ProfileLuke KinotiGroup Chief Executive Luke’scareerembracesover30yearsofbusinessfinancing,investmentmanagementandstrategy
implementation, mentoring, training and development of executives serving the sector. In the past, hehasheldvariousseniorleadershippositionsindevelopmentandSME/Microfinancelendinginstitutions includingAfricanMedical andResearchFoundation (Kenya),EcumenicalChurchLoanFund(ECLOF)andNationalCouncilofChurchesofKenya(NCCK).
LukeisagraduateoftheUniversityofNairobi(MathematicsandStatistics).Heisalsoamemberof the Institute of Directors and sits on various Boards.
Susan KagunduExecutive Director, Finance&Operations
SusanoverseestheGroupFinanceDepartmentresponsibleforpreparing,analyzinganddisseminatingfinancialinformationtovariousstakeholders,andmanagingtheGroup’sfunds.SheisresponsibleforfinanceandtaxmattersforFRED-COMMERCIAL.
Susan is a certified public accountantwith over 15 years’ experience in financial reporting andmanagementaccounting.ShewaspreviouslytheFinanceManagerforMelchizedekHospital,andDeputyHeadofFinancefortheKarenHospital.
SusanisaBachelorofCommerce(Finance)graduatefromtheCatholicUniversityofEasternAfrica,amemberoftheInstituteofCertifiedPublicAccountantsofKenya,aMemberoftheWomenonBoardsNetworkandanAssociateoftheInstituteofDirectors.SusanisaDirectoronvariousSPVBoards.
Michael KimondoHeadofAssetManagement Services
MichaelheadstheAssetManagementteamandisresponsibleforfundraising,businessdevelopment,portfolio management, treasury functions and all aspects of Fusion’s interaction with investorslocally and internationally. He is the team leader for the REITs Manager responsible for ensuring that the assets of the REIT are invested in accordance with the REIT Trust Deed.
HepreviouslyservedastheFinanceManagerandHeadofTreasuryatFusion.Priortothat,MichaelworkedasanAccountantwithLaborexEuropharma(Kenya),asubsidiaryofCompagnieFrançaisede l’AfriqueOccidentale (CFAO),with locations inmore than34countriesandFrenchoverseasterritories.
Michael is a Bachelor of Commerce (Finance) graduate from the University of Nairobi and aCertifiedPublicAccountant(Kenya).HeiscurrentlyreadingforaMasterofBusinessAdministration(MBA)degreeattheUniversityofNairobi.HeisalsoamemberoftheInstituteofCertifiedPublicAccountantsofKenya(ICPAK).
Daniel KamauHead of Real Estate
Daniel heads the Real Estate team responsible for all aspects of real estate investment in the East Africanregion.HehasadeepunderstandingoftheEastAfricanpropertymarketanddevelopmentprocess from acquisition to investment exit through his involvement in transactions in the commercial, residential, retail and hospitality sectors. He is responsible for overseeing the development and constructionactivitiesoftheProjecttobeundertakenbyFRED-COMMERCIAL.
DanielrepresentsFusioninvariousSPVsasaDirectorandhasbeeninstrumentalinsuccessfullysourcing,negotiating,structuringandundertakingduediligenceforFusion’srealestateinvestments,currently managing and overseeing a portfolio of over USD$ 200 Million. His previous position was asHeadofPrivateEquityandBusinessDevelopmentatFusionCapital,overseeingawiderangeofdealsinthefinancialservicessector,FMCG,agribusinessandothers.PriortothatheworkedasanAuditAssistantforThumbiNganga&Associates.
DanielisadoublemajorBachelorofCommerce(Accounting&BusinessAdministration)graduatefromDaystarUniversity,andisinhisfinalstagesofhisMasterofBusinessAdministration(Finance).
DanielrepresentsFusioninvariousSpecialPurposeVehiclesasaDirector.
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12.5 Fusion Investment Management’s role as REIT ManagerFIMistheREITManageroftheREIT.AsREITManager,FIMwillberequiredto:(a) CarryouttheadministrationoftheREITAssetsincluding the management of the portfolio of investments in accordance with the direction and the authority of the Trustee; as well as the provisions of the Trust Deed andtheAct;(b) AdvisetheTrusteeontheassetclasses,ifany, that are available for investment;(c) Formulateaprudentinvestmentpolicy;(d) InvesttheREITFundinaccordancewiththe investment policy of the REIT Scheme;(e) ReinvestanyincomeofFRED-COMMERCIAL which is not required for immediate payments;(f) EnsurethattheunitsintheREITarepricedinaccordance with the provisions of the Trust Deed, the Regulations andtheAct;(g) Prepareanddispatchinatimelymannerallcheques, warrants, notices, accounts, summaries, declarations, offers and statements under the provisions of the Trust DeedandtheAct;(h) MakeavailableforinspectiontotheTrusteeorany auditor appointed by the Trustee, the records and the books of accounts of the REIT Manager, giving either oral or written information as required with respect to all matters relating to the REIT Manager, its properties and its affairs;(i) Befairandequitableintheeventofanyconflict of interest;(j) CredittotheREITallmonetarybenefitsorcommissions arisingoutofmanagingtheFund,otherthanthe REITManager’sFees;(k) AccounttotheTrusteewithinthirtydaysafterreceiptby the REIT Manager any monies payable to the Trustee;(l) KeepandmaintainrecordsoftheREITatalltimes;(m)Notengageorcontractanyadvisoryormanagement servicesonbehalfofFRED-COMMERCIALwithout prior written approval of the Trustee;(n) ProvideinstructionstotheTrusteetoimplementthe objectives of the REIT and appoint a property manager or other person as its agent to assist it in undertaking its functions as REIT Manager; and(o) Beliableforanyactsoromissionsofitsagents.
12.6 REIT Manager’s Terms of Appointment (a) FRED-COMMERCIALwillatalltimesbemanagedand administered by a REIT Manager licensed by the Capital MarketsAuthorityandappointedbytheTrusteeasa contractorinafiduciarycapacitytofulfilltheroleofthe REITManagerassetoutintheAct,theRegulationsand theTrustdeedandtofulfilltheobjectivesoftheTrust. (b) TheREITManagerwillceasetomanagethefundunder the following circumstances:
(i) Revocation or suspension of the REIT Manager’s licence; (ii) WindingupoftheREITManager; (iii)ResignationoftheREITManager;or (iv)RemovaloftheREITManagerinaccordancewith theprovisionsoftheDeed,theActandthe Regulations. (c) TheREITManagershallberemovedimmediatelyonthe happening of any of the following events:
(i) Ifacourtofcompetentjurisdictionorders liquidation of the REIT Manager except for voluntary liquidation for the purpose of reconstruction or amalgamation upon terms previously approved in writingbytheTrusteeandtheAuthority; (ii) Ifareceiverisappointedfortheundertakingofthe REIT Manager’s assets or any other parts; (iii) IfforanygoodreasontheTrusteeisoftheopinion andsostatesinwritingtotheAuthoritythata change of the REIT Manager is desirable in the interest of the Securities Holders.
12.7 Shareholding Structure
Name Number of Shares
held
%Shareholding
FusionCapitalLimited(registered in Kenya as C.115970)
299,998 99%
Luke Mwiti Kinoti 2 0.001%
Total Issued Shares 300,000
Name ProfileLydia KariukiHead of Governance, Risk and Compliance
Lydia oversees legal, governance, risk and compliance matters for the Fusion Group and isresponsibleforregulatoryreportingforFRED–COMMERCIAL.
SheisaCertifiedPublicSecretaryandanAdvocateoftheHighCourtofKenya,withover10years’ experience in corporate and commercial practice.She is also certified as a complianceandcorporategovernanceprofessional.ShepreviouslyworkedasaSeniorAssociateAdvocateat Nyachoti and Company Advocates, overseeing the conveyancing and commercial lawdepartments.
Lydia is aMemberof theLawSocietyofKenya, the InstituteofCertifiedPublicSecretariesofKenyaand the InstituteofDirectors.She is alsoanAssociateof theChartered InstituteofArbitratorsandtheInstituteofHumanResourceManagement-Kenya.LydiaiscurrentlywritingherthesesfortheawardofaMasterofBusinessAdministration(MBA)degreeattheStrathmoreBusiness School.
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13.1 OverviewCitiscapeValuers&EstateAgencyLimited (CVEAL) isincorporated in Kenya as a limited liability company to offer independent and comprehensive real estate professional service.Thefirm is registered and regulated by relevantgovernment institutions and professional bodies including: The InstitutionofSurveyorsofKenya (ISK),TheRoyalInstitution of Chartered Surveyors (RICS), The ValuersRegistrationBoard,TheEstateAgentsRegistrationBoard.WithRICSandISKmemberships,Citiscapeisrecognizedand certified to provides real estate services locally andglobally.
CVEAL professionals have over 25 years of experiencein property management, sales and letting and property valuation inKenya and the EastAfrican region.We arecommitted to provision of exemplary services in real estate consultancy, through efficient and personalized advicethat upholds professional standards and ethics, to the full satisfaction of our clients.
We provide market-leading advice and transactionsupport to investors, corporates and property owners for their personal and business property needs. This is in line with our vision in which we seek to be ‘the leading and themost preferred property consultancyfirm that isknown for excellence in real estate solutions.’ Our focus is prime residential, commercial, industrial and agricultural property markets.
13.2 The Services We OfferCitiscape offer real estate consultancy services in the following key areas:
• PropertyManagement • PropertyValuation • SalesandLetting;PurchasesandLeasing • ProjectDevelopmentAnalysis • ProjectManagement • Research • RealEstateTraining • EnvironmentalImpactassessmentsandaudits13.3 Property Management Services
As Property Manager, Citiscape will provide the following key services:
• Sale of the apartments-Aggressivelymarketandsell the Greenwood City apartments with a view to achieve projected sales as per marketing plan; • Letting -LettheGreenwoodCityMallandtheOfficesto highnetworthtenantsforsustainedincomeflow; • Management -Ensurequalitymanagementofthecore rental income stream of the property. Maintain the property to the highest standards for physical and economic value addition to the property. Maintain a virtuous working relation with the tenants for to ensure sustained income stream for the property • Overall coordination of the property management aspects-Bethelinkbetweenthepropertyusersand the REIT Manager.
Name Profile
Ms. Nelly K. Mbugua Managing Director
Ms.NellyK.MbuguaisaregisteredestateagentwiththeEstateAgentsRegistrationBoard(EARB),aCharteredSurveyorandaregisteredandpractisingvaluer.NellyistheactingchairoftheEARB-theregulatorybodyinKenyaresponsibleforregistrationand regulation of property managers and estate agents in Kenya.
NellyisamemberoftheRoyalInstitutionofCharteredSurveyors(RICS)aswellastheInstitutionofSurveyorsofKenya(ISK).SheisapastchairpersonoftheChapteroftheValuersandEstateManagementofISK.SheisaregisteredLeadExpertwithNationalEnvironmentalManagementAuthority.
Nelly’s real estatecareer spans24years, inwhich shehashadhands-onexperienceincommercial,residential,retailandofficepropertymanagement;propertysalesandletting; property valuation and research; project management and real estate training.
Ms.MbuguahasworkedwithMureithiValuers;LloydMasikaLimitedrising to thepositionofanassociatedirector;CBBRichardEllisandKenyaValuersasadirector.Within the companies,Nelly carried out commercial, retail and residential propertymanagement, valuation and real estate agency.
Ms.MbuguaholdsaBachelorofArtsdegreeinLandEconomicsfromtheUniversityofNairobi,apost-graduatediplomafromtheInstitutionofSurveyorsofKenyaandanEnvironmentalImpactAssessmentcertificatefromtheAfricaNazareneUniversityinKenya.
13 The Property Manager
The following key personnel will be instrumental in the Property Management:
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Name Profile
Ms. Bilo BhullarHead of Property Management
Ms.Bhullar isacertifiedcharteredaccountantandholdsadiplomainaccounting inbusiness management. Ms. Bhullar has over 28 years’ experience in the real estate sector. Shehasexperienceincommercial,retail,officeandresidentialpropertymanagement,with a lot of involvement in property management accounting. She served for 24 years as a senior accountant and a propertymanager atLloydMasikaLimited andAmeeHolding Limited.
AtCitiscape,Ms.Bhullarhasbeen involvedwithmanagementof largecommercial,residential and retail properties. She also oversees supervision of staff, rent collection, liaison with clients, preparation of market reports, bank reconciliations, preparation of ledgers, preparation of detailing monthly income/expenditure statements and tenant support. She handles all high net worth clients and maintains a database of this group of valued clients.
She takes charge of project marketing, strategy implementation and client liaison.
Mr. Michael OtienoAssociateDirector-PropertyManagement
Mr. Michael Otieno is a registered and licensed valuer and estate agent. He is a member of the Institution of Surveyors of Kenya.
Michaelhasbeeninvolvedwithcommercial,residentialandofficemanagementandhascarried out business development and market analysis for the Citiscape. Michael has beenapropertymanagerforthecompanyandhashadhands-onexperienceinhandlingleases,lettingofvacantspace,rentcollection,budgeting,staffsupervisionandfinancialstatement preparations.
MichaelholdsaBachelorofArtsdegree inLandEconomics fromtheUniversityofNairobi,apost-graduatediplomafromtheInstitutionofSurveyorsofKenya.Hehas5years post graduate experience in property management, sales and letting and valuation.
Mr. Amos AgiroBusiness Development and QualityAssuranceManager
Mr.AgiroholdsaBachelor’sdegreeinInformationSystems(IS)andisafinalistsinMasterofBusinessAdministration(MBA),StrategicManagementfromUSIU-Africa.
Amosisresponsibleforonlineandtechnologydrivenmarketing.Heisalsoresponsiblefor formulation of potential growth strategy as well as support and monitoring of implementation of the strategy. He oversees the implementation of Quality Management Systems.
He coordinates the knowledge and feedback from the company’s departments and clients to ensure that the company is implementing it’s growth strategy successfully. To thisend,Amosmanagescompanybrandandproducts,andpreparesmarketingmaterialincludingforboththedigitalandnon-digitalplatforms.Mr.Agiroisalsoresponsiblefor:• Re-brandingandrepositioningofthecompanytoglobalstandards;• Developingandpromotingthecompanyprofileonbothdigitalandnon-digital
platforms;• Initiating new product lines for the company;• Coordinating with all staff members with the view of synergising and increasing
performanceinspecificprojects;• Developing comprehensive and robust marketing communication strategies for the
company and its products, through an integrated and diverse approach.
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Name Profile
Mr. Kevin Mungai Head-Valuation&Research
Mr.MungaiisaholderofBachelor’sdegreeinRealEstateManagement(BRE)fromthe University of Nairobi. He has four years’ experience in property valuation, property management, sales and letting.
Kevinhasundertakenresidentialandcommercialpropertymanagementandhashands-on experience in rent collection, client liaison, handling repairs and maintenance, preparation of management plans among other management skills.
Healsohasexperienceinvaluationofhotels,officeblocks,shoppingmalls,residentialand commercial properties. He handles selected portfolios and selected high net worth clients.Mr.MungaiisagraduatememberoftheInstitutionofSurveyorsofKenya(ISK).Hehas four years’ experience in the real estate sector.
Ms. Zawadi Hilda WanderaAss.PropertyManager
Ms. Wandera is a holder of Bachelor Real Estate Management (BRE) from theUniversity of Nairobi. She has one year experience in property management, property sales and letting.
She is involved in day-to-day property management of rent collection, leaseadministration,rentcollectionandtenants’liaison.Ms.Wanderaalsohandlesvaluationof commercial, residential and agricultural properties. She is also responsible for generating valuation reports and market sector summaries. She is responsible for site visits and client correspondence.
Ms.WanderaisagraduatememberoftheInstitutionofSurveyorsofKenya(ISK).
Ms. Winnie WachiuriAssociateEstateAgent
Ms.WachiuriisaholderofBachelorRealEstateManagement(BRE)fromtheUniversityof Nairobi. She has one year experience in commercial estate agency, valuation and property management.
She is involved in day-to-day property management of rent collection, leaseadministration,rentcollectionandtenants’liaison.Ms.Wachiurialsohandlesvaluationof commercial, residential and agricultural properties. She is also responsible for generating valuation reports and market sector summaries. She is responsible for site visits and client correspondence.
SheiscurrentlytheofficemanageratGreenwoodCityMeru,acommercialshoppingcomplexwithoffices,residentialandretailshops.Winnieundertakespropertyvaluationsin the company.
Ms.WachiuriisagraduatememberoftheInstitutionofSurveyorsofKenya(ISK).
Ms. Carol K. NyagaSales and Letting Executive
Ms. Nyaga has over 6 years’ experience in real estate residential sales and letting and is ahands-onandseasonedmarketer,havingworkedasasalesexecutiveandsupervisorwith Deacons Kenya.
Ms. Nyaga is responsible for:• Residentialmarketingandsales;• Marketingandfollow-upofindividualclients;• Clientdatabases;• Customersatisfaction;• Selectedhighnetworthclients.
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13.4 Property Manager’s Sales Strategy
To make this REIT a resounding success, Citiscape key service provision areas will be underpinned by thorough marketknowledge,basedonyear-on-yearmarketanalysis.Wehavelaidthefollowingkeystrategies:
(a) Targeted and aggressive marketing campaigns –We havetargetedlocalinvestorsintheEastAfricanregion as well as international investors for our marketing campaigns. This is aimed at companies and individuals who are looking to expand their investments in Meru and in lifestyle centres like Greenwood City Meru;
(b) Enhanced marketing through digital and non-digital platforms-Wehaveembarkedonshowcasing Greenwood City as the ultimate destination for investmenttofirstandsecondtimehomeownersand investors through revamped websites, Eshot emails and other social media avenue; and
(c) Networking among peers with the aim of raising interest and awareness of the property, regionally andglobally.Morespecificstrategiesinclude:
i. Mall letting-Acombinationofprintmedia presence, direct marketing and online marketing has yielded exciting interest in Greenwood City resulting in a number of leading international brands and companies taking up space and signing leases;
ii. Officeletting-Wearereachingouttoprofessionals who are taking advantage of the devolved units ofgovernancewiththeaimofofferinggrade‘A’ officespacetothemtodecentralizetheirservices. These include doctors, architects, engineers, valuers among others; and
iii. ApartmentSales-Wehavecarriedoutdirectmarket and networking to the elite within and without the Meru County. In addition, we have embarked on aggressive online marketing that has resulted in diaspora interest in the apartments as they seek income generating homes in the County.
Name Profile
Ms. Rosyline NaitoreSales and Letting Executives
Ms. Rosylinehas5years’experience in realestateagencyandhasabackgroundofbusinessmanagementandfrontofficemanagement.Sheisresponsibleforresidentialand commercial sales in the coast region.
She is responsible for residential marketing and sales in the Coast region. She is the companyleadagenton theMarinaCreeksidedevelopment.Morespecifically,she istasked with:• Maintainingadatabaseofallpotentialclients;• Followingupandtryingtoclosethedealwithtargetedclients;• Writingandsubmittingregularreport;• Targetedmarketing through events and group email.
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14 The Structural Engineer
14.1 Overview and BackgroundMultiscope Consulting Engineers Limited is a Kenyan consultingengineeringfirmthatstartedoperationsinApril2001asasoleproprietorshipbutlaterinApril2007registeredas a limited company. The firm’s mission is to satisfyClient needs by providing innovative, creative, feasible, quality solutions to engineering problems; solutions that are economical, socially desirable and environmentally sustainable.Thefirmstrivestobedistinctlydifferentinitsdelivery of services by consistently delivering projects of desired quality on time and within budget.
14.2 Services Multiscope provides consultancy services in diverse fieldsof civil engineering and its related development projects which currently comprise of the following core areas of specialization:
(a) Bridge ,Road and Transport Engineering, (b) WaterSupplyandSanitation, (c) StructuralEngineering–Designandconstruction supervision (d) StructuralAudit–Designandconstruction supervision (e) GeotechnicalEngineering, (f) DamEngineering, (g) InfrastructureDevelopmentStudiesand (h) Forensic Engineering
14.3 Key PersonnelMultiscope Consulting Engineers Senior Management
Name Profile
Eng. S.N. Maugo, Managing Director
Eng.MaugoisaRegisteredconsultingEngineerandaMemberoftheAssociationofConsultingEngineers with more than 36 years of experience in geotechnical investigations, forensic engineering, structural design and construction supervision of several projects. He has been involved in the geotechnical investigations and/or design of dams, spillways and outlet works, urban and rural water supply, low rise and high-rise reinforced and pre-stressed concretebuildings, industrial steel structures, water retaining structures and structural evaluation of existing buildings. He has been a Project Structural Engineer for various projects.
His training included in-house training on quality control procedures and quality assurancemeasures while working at Kenya Bureau of Standards as a Quality Control Engineer responsible for surveillance of the quality of building and construction materials.
EngMaugoholdsaBSc(CivilEng)fromtheUniversityofNairobiandaM.Eng(StructuralEngineering) from Concordia University, Montreal Canada. He was a lecturer at the civilengineering Department, University of Nairobi for 18 years before opting out to venture into full time consultancy work, in 2007.
Eng. B.O. Okoya Director, Structures, Research and Development
Eng. Okoya has over eight (8) years post graduate experience in design and constructionsupervision of various civil and structural engineering works. He has been involved in technical audit, forensic engineering, structural investigations and evaluation of existing buildings design andconstructionsupervisionoflow-riseandhigh-risereinforcedconcretebuildings,steelandreinforced concrete bridges, masts, industrial steel structures and various civil engineering works.
Eng.OkoyaisaholderofaBachelorofSciencedegreeinCivilEngineering(FirstClassHonors)from the University of Nairobi in 2008 and a Master of Science degree in Structural Engineering from the University of Nairobi in 2013. He also lectures structural engineering at undergraduate level in the department of Civil and Construction Engineering at the University of Nairobi since February2012.Hehasinterestsinandhasbeeninvolvedinresearchinthebroaderfieldofcivilengineering construction material covering concrete and steel.
BarrackisaCivilEngineerregisteredwithEngineersBoardofKenya(EBK)andalsoagraduatememberofInstitutionofEngineersofKenya(IEK).HeisproficientincomputerprogrammessuchasCivilCAD,Prokon,STAADPro,Robot,AutoCADandMicrosoftOffice.
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Name Profile Eng. R.K. Mwirigi AssociateDirector,Operations and Quality Assurance
Eng.MwirigiholdsaB.Sc.inCivilEngineeringfromJomoKenyattaUniversityofAgricultureand Technology and is currently pursuing M.Sc. in Construction Engineering and Management at JomoKenyattaUniversityofAgricultureandTechnology.Hehasprofessionalexperiencewhichhas been gained during conducting feasibility studies, engineering designs and construction supervisionofroads,trafficstudies,buildings,stormwaterdrainages.Healsohasknowledgeon quality assurance and quality control, planning, coordination, budgeting and monitoring of projects, pavement design, preparation of road geometric design drawings, estimation of quantitiesandpreparationoftechnicalspecificationdocumentsforroadprojectsinKenya.
Over the eight years in practice, Eng. Mwirigi has been versed with professional design codes and standardsincivilengineeringandincomputerpackagesincluding:MicrosoftOfficepackages,(Word,Excel,PowerPoint,Access,MSProject,andExplorer)AutoCADandCivil3D.
Eng. Benjamin E. Ongong’oAssociate Director, Business Development, Roads and Transportation
Eng. Benjamin is a Registered Professional Engineer with Engineers Board of Kenya, EBK and is also a Corporate Member of the Institution of Engineers of Kenya, IEK. He holds a B. Sc. Degree in Civil Engineering from the University of Nairobi and Higher Diploma in Business ComputingfromtheInstituteforManagementofInformationSystems(IMIS)–UK.
Eng.Benjaminhasovernine (9)yearsofpost-graduate experience in the feasibility studies,materials investigation, traffic studies, materials and traffic data survey analysis, design,preparation of design and materials reports, cost estimation, preparation of tenders, contracts documentation, construction works supervision, contracts administration and technical audits of roads and rural water supply projects in Kenya. He is currently the Resident Engineer of Port Reitz/MoiInternationalAirportAccessRoad.
He is computer literate with proficiency in Microsoft Office Suit, AutoCAD applications,Primavera,NOVAPoint(16.10,17.00),andCivil3Dfordaytodayengineeringapplications.Other trainings that Eng. Benjamin has attended include: People Leadership, Customer Excellence&WritingSkills,PresentationSkills,FirstAidatWorkand InductionCourseonOccupational Health and Safety for Site Staff.
Eng. Richard Makori JumaSeniorEngineer,WaterandSanitation
Eng. Richard Makori Juma is a Registered Professional Engineer working with Multiscope Consulting Engineers Ltd. Over the years, he has acquired experience in the planning, design and supervision of dams andWater Supply projects,Operation&Maintenance ofDam andWater Supply projects, structural design of reinforced concrete structures, Road-works,sewerage systemdesign andfloodprotection. Hehas also been involved in carrying out theSpecialTechnicalandFinancialAuditofWaterandSanitationImprovementProject(WaSSIP)ProjectsspecificallyRuiru-JujaWaterSupplyProjectandrelatedcivilworks.HehasalsobeeninvolvedincarryingouttheTechnicalandFinancialAuditfor54no.projectswithinthecountryfundedbytheDANIDAthroughCommunityDevelopmentTrustFund(CDTF).
He has completed work that includes: Review of project and general study of the project areas through site visits and review of Client’s reports; Preparation of mapped contours for the projectsites;PreparationofPreliminaryandFinaldesignandsizingofthewatertreatmentunitsincluding raw water and rising main analysis and design; Dam stability analysis; Preparation of raw water and rising main analysis and design; Design of power infrastructure complex; Carrying out Dam risk analysis and spillway design.
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Name Profile
Eng. George W. MainaSenior Engineer, Structures
Eng.GeorgeW.MainaholdsaBachelorofScience(CivilEngineering)degree,isaRegisteredEngineer with the Engineers Board of Kenya, EBK and is a Corporate Member of the Institution ofEngineersofKenya,IEK.HepossessesasoundandworkingknowledgeofMsWindowsoperatingsystem,andsoftwaresuchasPROKON,STAAD,MSPROJECT,andAutoCAD.
Eng. Maina has over 8 years of experience. The expertise, which has been gained in the public and private sectors, covers a range of Civil / Structural Engineering disciplines encompassing the Planning, Design, Management and Supervision of works involving Residential, Industrial and Commercial Buildings, River Dredging and Bridges, Towers and Masts, and general Civil Works:WaterResources,HighwaysandRoads,PublicHealthEngineeringandEnvironmentalManagement.
Eng. Urbanus K. MusyokaSenior Engineer, Structures
Eng. Musyoka is a Corporate Member of the Institution of Engineers of Kenya and currently the Resident Engineer of Meru Greenwood Park Limited. He has experience in supervision works on commercial, institutional, industrial and residential developments. He has also been involved in design of hydraulic structures, water supply and storm water and erosion control structures. He is conversant with local and international design standards and specifications includingBritishStandards,AmericanStandards,InternationalBuildingCodes,Uniformbuildingcodes,andKenya standards.He is also proficient in the use of software such asMicrosoftOffice,MicrosoftProject,AutoCad,ArchiCad,Prokon,andStaadPro.
14.4 Role of the Structural Engineer
The appointed Structural Engineer, will be required to: (a)Conductanappraisalofanyrealestateprior to acquisition by the REIT; and (b)ProvideareporttotheREITmanagerandthe Trustee on:
(i) Thestateofrepairoftheproposedpropertyand its services, systems and material plant and equipment; (ii) Anylatentdefectsandthecost,ifany,whichis likely to be incurred in curing such defects or in bringing the property to a reasonable state of repair; and (iii) Anydeficienciesinitsabilitytomakeafull assessment and whether additional professional assessment, input or reports are required.
14.5 Timing for the submission of the Structural Engineer’s Report
Asper the Regulations, the Structural Engineer is required to provide a report to the REIT Manager and Trustee as explained in Section 14.4 (b) above. The StructuralEngineer’s report will be prepared and provided to the REIT Manager and Trustee within 180 days of the close of the Offer.
14.6 Potential conflicts of interest of the Structural Engineer
Multiscope Consulting Engineers does not have any conflictsofinterestorcompeting roles.
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15 The Property Valuer
Ngotho Property Consultants Limited have been appointed astheREIT’svaluer.ThefirmhasworkingarrangementswithreputablefirmsofvaluersandestateagentsinUganda,Tanzania,Rwanda,BurundiandtheUnitedKingdomforconsultation in regional and international assignments. Further,thefirmteamsupwithengineers,environmentalimpact assessors, project managers, land surveyors, quantity surveyors and accountants to carry out specificspecialisedormulti-disciplinaryassignments.
Thefirm’sareasofcompetenceinclude:
(a) Valuationofcommercial,industrial,residentialand agricultural properties including plant, machinery, furniture and equipment for sale, rental, mortgage, insurance, accounting and forced sale purposes. Carrying out forensic valuations for litigation purposes or audit;
Name Profile
Paul Ngotho Managing Director
PaulNgothoholdsBALandEconomics(Hons)andisaFellow(FISK)ofTheInstitutionofSurveyorsofKenya),Member (MRICS) of theRoyal Institution ofChartered Surveyors ofUK,CharteredArbitratorandFellow(FCIArb)oftheCharteredInstituteofArbitratorsoftheUnitedKingdom.HeisalsoaRegisteredandPractisingValuerandRegisteredEstateAgent.
He has over 30 years of experience in real estate and dispute resolution in Kenya, Uganda, Rwanda and the United Kingdom.
He is also amember of the Public ProcurementAdministrativeReviewBoard (PPARB) and thePoliticalPartiesDisputesTribunal(PPDT).
Mary Gathu MaryGathu holds aBachelor ofCommerce degree from theUniversity ofNairobi, anMBA inStrategicManagementfromtheUniversityofWalesandaPostGraduateDiplomainTeachingfromthe University of Roehampton in United Kingdom.
(b) WorkingtothestandardsspecifiedbyTheInstitutionofthe SurveyorsofKenya(ISK)HandBookandtheRoyal InstitutionofCharteredSurveyors(RICS)Valuation Standards;(c) AlternativeDisputeResolution–solvingpropertyand construction disputes through structured mediation, expert determination, adjudication and arbitration saving valuable time and money for the parties in addition to safeguarding privacy;(d) Management,sellingandlettingofcommercial,industrial and residential developments. This includes lease restructuring (surrenders, extensions as well as sale and leasebacks)onreasonableterms;and(e) ConsultancyonRealEstateInvestmentTrusts (REITs),LandUse,BaselineSurveys,HousingStock ConditionSurveys,SeminarsandAdvocacyon contemporary property.
15.2 Policy in relation to revaluationsThe fair value of the properties is determined annually at the reporting date by an independent professionally qualified valuer adjusted by management to reflect thecurrent stage of completion of the project. In determining the valuations the valuer refers to current market conditions including recent sales transactions of similar properties. In estimating the fair value of the properties, the highest and
best use of the property is their use at the end of the project developmentadjustedby thecompletion factor to reflectthe condition as of the balance sheet date.
15.3 Potential conflicts of interest of the Property ValuerNgotho Property Consultants Limited does not have any conflictofinterestorcompetingroles.
15.1 Key Personnel
Senior Management
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16 The Project Manager Certifier
16.1 OverviewBeequeConsultantsLimited,isafirmofQuantitySurveyorsand Building Economists, construction project managers andconstructioncontractsArbitration/Disputeresolution.
16.2 BackgroundThe practice was established in 1993 as a Partnership and registered in March 1994 under the Registration of Business NamesActChapter499oftheLawsofKenya.Itwasregisteredthe same year under Architects and Quantity SurveyorsOrdinance. In March 1996, this firm was registered undertheCompaniesActChapter486oftheLawsofKenyaasaPrivate company limited by shares.
16.3 ServicesThe practice provides all functions associated with Quantity Surveying and building cost consultancy including among others;
(a) Feasibilitystudies; (b)Costplanningandcontrol; (c) PreparingBillsofQuantitiesandotherBidding documents; (d)Preparinginterimpaymentvaluations; (e)Measuringvariations; (f) Preparingandsettlingfinalaccounts; (g)Advisingoneconomicsofvariousbuildingtypes; (h)Materials,modesofconstruction; (i) ArbitrationinsettlementofBuildingdisputes; (j) ProjectManagement.
16.4 Key Personnel
Name Profile
M.J. Mburire, Technical Director
M.A.A.K(Q.S.)C.I.Q.S.KB.A.(Build.Econs)Hons.Registered Quantity Surveyor.
M.K.Kinyua FinanceDirector
(MBA)Hons
S.W.MugurePartner
B.A.(Build.Econ)HonsRegistered Quantity Surveyor.
O.Z. Munala Partner
B.A(Build.Econ)Hons.Graduate Quantity Surveyor.
16.5 Roles, duties, responsibilities and obligations of the Project Manager Certifier
The PMC will be required to:
(a)MonitorandreporttotheTrusteeandtheREIT Manager on the progress of the development or construction work being planned or undertaken; (b)Reportonthecostofworkundertakenortobe undertaken to complete the development or construction; (c)Monitorandreportonthecostofscheduledplant and equipment to be acquired; and (d)Ensurethatthecostsundersubparagraph(c) are included in the development or construction works budget.
Furthermore, the Project Manager Certifier shall monitorand submit a report to the Trustee and the REIT Manager on a monthly basis on:
(a)Whetherornottheworkhasbeencompletedin accordance with the budget, project plan and payment schedule or any variations prepared by the REIT Manager and approved by the trustee; (b)Whetherscheduledpaymentsshouldbedisbursed by the Trustee to meet the work undertaken, costs of or connected with the development or construction; (c) Thecostsofanyproposedvariationofscheduled works or proposed acquisition of plant and equipment; and (d) theestimateofthecostandtimerequiredtocomplete the development and construction work relative to the budget and project plan.
16.6 Timing for the submission of the initial Project Manager Certifier’s Report
As per the regulations, the Project Manager Certifier isrequired to provide a report to the REIT Manager and Trustee as explained in Section 16.5 above. The initialProjectManager’sCertifier’sreportwillbepreparedandprovided to the REIT Manager and Trustee within 180 days of the close of the Offer.
16.7 Potential conflicting interests or competing roles of the Project Manager Certifier
BeequeConsultantsLimiteddoesnottohaveanyconflictsof interest or competing roles.
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17 Key Terms of the Trust Deed and Scheme Documents
17.1 Key aspects of the Trust Deed
17.1.1 Key parties’ roles, responsibilities and obligations
The Trustee’s, REIT Manager’s, Valuers’, auditor’s andStructuralEngineersandProjectManagerCertifier’s roles,responsibilities and obligations are set out in the following sections of this document:
Party SectionTrustee 10REIT Manager 12ThePropertyValuer 15Structural Engineer 14ProjectManagerCertifier 16
17.1.2 Liabilities of the Trustee and REIT Manager
Under Clause 18.1.2 of the Trust Deed, the Trustee is required to act honestly and in a fiduciary capacity asTrustee in the best interests of the REIT Securities Holders asbeneficiariesoftherealestateinvestmenttrustandtheTrustee’s discretions.
The liabilities of the REIT Manager are set out in Clause 13 of the Trust Deed and state as follows:
“13.1 The REIT Manager of FRED - COMMERCIAL shall not be liable for any loss, damage or depreciation in the value of the Fund or of any investment comprised therein or the income therefrom which may arise by reason of depreciation of the market value of the Real Estate and other assets in which the Fund is invested unless such loss, damage or depreciation in the value of the Fund arises from negligence whether professional or otherwise, willful default or fraud by the REIT Manager or any of its agents, employees or associates.
13.2 In the absence of fraud or negligence by the REIT Manager, the REIT Manager shall not incur any liability by reason of any matter or thing done or suffered or omitted by it in good faith under the provisions of the Trust Deed, Offering Memorandum, the Act or the regulations.
13.3 The REIT Manager shall not be under any liability except such liability as may be expressly assumed by the REIT Manager under the Trust Deed, any Information or Offering Memorandum, the Act and the Regulations, nor shall the REIT Manager save as expressly provided herein be liable for any act or omission of the Trustee.”
NB: any purported limitation on fiduciary duty owed to REIT securities holders by the Trustee and the REIT Manager is invalid.
17.1.3 Powers of the Trustee and REIT Manager
These are set out as follows:
Party SectionTrustee 10REIT Manager 12
17.1.4 Appointment, removal, retirement or replacement of Parties
These are covered as follows:
Party SectionTrustee 10REIT Manager 12ThePropertyValuer 15Structural Engineer 14ProjectManagerCertifier 16
17.1.5 ValuationsThe obligation to conduct valuations and frequency of valuations is covered in the Trust Deed.
17.1.6 Meetings of Securities Holders The obligation to call meetings and the rights of REIT securities holders to call meetings are covered in Clause 33 of the Trust Deed. In summary:
The Trustee shall convene an annual general meeting of the REIT Securities Holders within three months after the relevant accounting reference date of the REIT via not less than 21 days written notice, inclusive of the date in which the notice is deemed to be served, and the day of the meeting.
Securities holders may requisition for a meeting which requisitionshall-
(a) Statetheobjectsofthemeeting; (b)Bedated; (c)BesignedbyamajorityinnumberofallSecurities Holders who, at that date, are registered as the SecuritiesHoldersrepresentingnotlessthanone- tenth in value of all of the units in the REIT funds then in issue; (d)BedeliveredtotheREITManager.
The Trustee or the REIT Manager, as the case may be, may conveneanextra-ordinarymeetingofSecuritiesHoldersat any time but not later than six weeks after receipt of a requisition. The quorum of the meeting shall consist of SecuritiesHolders of at least 25% of theUnits in Issueinclusive of proxies received.
Securities holders have the right to receive reports and financialstatementsoftheREIT
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17.1.7 Rights of REIT securities holders, including limitations of those rights and decisions or actions requiring the approval of REIT securities holdersSecurities holders have the right to:
(a) ReceivedistributionsonincomeoftheREIT,ifand when declared by the REIT Manager, based on the units held, less any withholding taxes chargeable. If the Trustee is of the opinion that the level of distribution recommended by the REIT Manager is not in the interests of REIT Securities Holders, the Trustee may call a meeting of REIT Securities Holders for the purposes of approving, by an ordinary resolution, a lower but not a higher distribution; (b)Receivenoticesofmeetingsofsecuritiesholders; (c) Attendandvoteatmeetingsofsecuritiesholders; (d)Appointaproxytoattendandvoteatameetingof securities holders; and (e) ReceivereportsandfinancialstatementsoftheREIT.
Note that Securities holders will not have the right to request for redemption of their units.
NotefurtherthataREITsecurityinFRED-COMMERCIALwill not be construed to confer interest in a particular asset of the REIT. Rather, it will be an undivided share, right, interest orentitlementintheassetsofFRED-COMMERCIALasa whole.
17.1.8 Requirements for listingThe following requirements will apply:
(a) TheREITSecuritieswillbelistedonarestricted market segment of the relevant securities exchange; (b)TheREITSecuritieswillbeofferedinminimum subscriptionorofferparcelsofKenyashillingsfive million(KES.5,000,000/=); (c) TheREITSecuritiesmay,subjecttotheRegulations, only be transferred to a party to whom they could have been issued or offered; and (d)Therewillbeatleast7investorsintheREITat initial issue.
Additional listing requirementswill bedeterminedby theNSE,thesecuritiesexchangeonwhichFRED-Commercialsecurities are to be listed.
17.1.9 Rights and limits on the ability to call for or to obtain redemption of REIT securities.ASecuritiesHoldershallnothavetheright to request the Trustee to redeem its holding of REIT securities.
However, the REIT shall have the right but not the obligation to offer to purchase for cancellation at any time the whole or from time to time any part of the outstanding Units, at a price per Unit and on a basis determined by the Trustee, subject to compliance with all applicable securities laws, instruments, regulations, rules, notices or policies or the rules or applicable policies of the securities exchange onwhichFRED-COMMERCIALSecuritiesarelisted.
17.1.10 Circumstances in which connected persons are not permitted to exercise voting rights in respect of REIT securities held by themConnected persons are not permitted to exercise their voting rights in a contract for the provision of goods and services where:
(a) thegoodsorservicesaretobecontractedwiththat connected party; (b) theprovisionisnotsubjectedtoatransparentopen bidding process; and (c) theproposedcostofthegoodsandserviceswhen aggregated with all other transactions conducted with connected persons relating to the provision of goods and services in the immediately preceding 12 months exceedsorwouldexceed15%oftheamountspenton connectedparty-providedgoodsandservices.
17.1.11 Maximum fees and charges permitted by the trust deed and payable by investors either directly
or indirectly or out of the assets of the trustThere are no prescribed caps on costs within the Trust Deed. However, the scheme documents set out the agreed fees for the main consultants to the REIT being the REIT manager,propertymanager,projectmanagercertifierandthe structural engineer.Any alterations to these schemedocuments will be subject to the approval of securities holders in general meeting.
Foradditionalinformationontheestimatedcosts,feesandcharges for the REIT, refer to Section 28 of this OM.
17.1.12 Permitted expenses, costs and charges payable out of or reimbursable from the assets of the fundThe Parties to the REIT will be remunerated out of the assets of the REIT. Trustee will be entitled to certain disbursementsexpresslyrequiredorauthorizedtobepaidout of the REIT.
The REIT Manager shall receive an asset management fee as per Section 28 of the Offering Memorandum. In addition the REIT Manager shall be reimbursed for the costsandexpensessetoutintheAppointmentContractforthe REIT Manager.
Upon winding up, the REIT Manager shall cause liabilities of the REIT to be met out of the proceeds of the REIT Fund.
17.1.13 The termination or winding up of FRED - COMMERCIAL
The REIT may be wound up: (a) Byorderofthecourt; (b) Ifaspecialresolutionispassedtothateffect; (c)Whentheperiod(ifany)fixedfordurationoftheREIT by the Trust Deed expires; or (d) Ifaneventoccurs,ontheoccurrenceofwhicha Scheme Document provides that the REIT is to be wound up.
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Upon commencement of winding up:
(a) Regulationspertainingtopricing,dealing,investment and borrowing powers shall cease to apply to the REIT; (b) TheREITfundsshallceasetoissueandcancelUnits; (c) NotransferofaUnitshallberegisteredandnoother change to register of Securities Holders shall be made without the sanction of the Trustee, as the case may be; (d) TheREITshallceasetocarryonitsbusiness,exceptso farasmayberequiredforitsbeneficialwindingup; (e) Howeverthecorporatestateandcorporatepowersof the REIT and (subject to the preceding provisions of the Act)thepowersoftheTrusteeshallcontinueuntilthe REIT is dissolved.
The REIT Manager shall as soon as practicable after the effective time:
(a) Publishinnotlessthantwodailynewspapersof national circulation published in the English language, the decision to wind up the REIT and the date of commencement of the winding up; and (b) IftheREITManagerhasnotpreviouslynotifiedthe Securities Holders of the proposal to wind up, give written notice of the commencement of the winding up to the Securities Holders.
FinallytheREITwillbewoundupinthefollowingmanner:
(a) TheREITManagershallcauseliabilitiesoftheREITto bemetoutoftheproceedsoftheREITFund; (b) TheREITManagershallgiveinstructionsofhow suchproceeds(untilutilizedtomeetliabilitiesormake distributionstoSecuritiesHolders)shallbeheld and such instructions shall be with a view to the prudent protection of the creditors and Securities Holders against loss; (c) Providedtherearesufficientfunds,afterprovisionfor expenses and the discharge of the liabilities of the REIT funds remaining to be discharged, the REIT Manager may arrange to make one or more interim distributions out of such funds to the Securities holders proportionately to the right to participate in the REIT funds attached to their respective units; and (d) TheREITManagershallmakeafinaldistributiononor priortothedateonwhichthefinalaccountissentto theSecuritiesHoldersafterrealizingtheportfolioand all the liabilities of the REIT.
17.2 Summary of the material terms of other scheme documents
17.2.1 Contract with the REIT ManagerServices to be provided include:
(a)AdministrationoftheREITAssetsincludingthe management of the portfolio of investments; (b)AdvisingtheTrusteeontheassetclasses,ifany,that are available for investment; (c) Formulatingaprudentinvestmentpolicy; (d)InvestingtheREITFundinaccordancewiththe investment policy;
(e) ReinvestinganyincomeoftheREITwhichisnot required for immediate payments; (f) EnsuringthattheunitsintheREITarepricedin accordance with the provisions of the Trust Deed, the RegulationsandtheAct; (g)Makingsubsequentissuesofunitsinaccordancewith theTrustDeed,theRegulationsandtheAct; (h)Rectifyinganybreachofmattersrelatingtoincorrect pricing of units or to the late payment in respect of the issue of units; (i) Preparinganddispatchinginatimelymanner all cheques, warrants, notices, accounts, summaries, declarations, offers and statements; (j) MakingavailableforinspectiontotheTrusteeorany auditor appointed by the Trustee, the records and the books of accounts, giving either oral or written information as required; (k)CreditingtotheREITallmonetarybenefitsor commissionsarisingoutofmanagingtheFund, otherthantheRM’sFees; (l) AccountingtotheTrusteewithin30daysafterreceipt of any monies payable to the Trustee; (m)KeepingandmaintainingrecordsoftheREITat all times; (n) ProvidinginstructionstotheTrusteetoimplementthe objectives of the REIT; and (o)AppointingaPropertyManagerorotherpersonas its agent to assist it in undertaking its duties as REIT Manager.
17.2.2 Contract with Legal AdvisorServices to be provided include:
(a) Legislativereviewincludingadvisingonthe Regulations,theCapitalMarketsAct,theapplicable land laws and tax laws; (b) Structuringadvicei.e.advisingonthemostsuitable structure for the entity that will be the Promoter and the REIT Manager; (c) Providinglegaladviceinrelationtotheengagement of other necessary players including the Trustee, the REIT Manager, valuers and other consultants which includesdraftingtheManagementServicesAgreement withtheREITManagerandtheAgreementwith PropertyManagerandotherAgreementswith consultants and experts; (d)AdvisingonanddraftingoftheREITTrustDeedto ensure compliance with the Regulations and general Trust Law; (e) Providinglegaladviceinrelationtotheprocessof acquisition/transfer of real assets to the REIT in order to comply with the asset requirements under the Regulations; (f) AdvisingintheprocessofapplyingtotheCMAforthe authorizationoftheREITManager,REITTrusteeand the REIT itself under the regulations; (g)Draftinganylegaltransactiondocumentations/ agreements for the Offer including but not limited to Board and Shareholders resolutions for adoption, notices for the shareholders’ meeting and extraordinary general meeting of the relevant entities to approve the Issue;
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(h)Assisting the transaction advisors in evaluating the Issuers compliance with the Capital Markets Authorityregulations; (i) Carryingoutlegalduediligenceforpurposesof determining if the Issue meets the statutory eligibility criteria prescribed in the Regulations; (j) Issuingtheformallegalopinionswhicharerequired under the Regulations and to be included in the Offering Memorandum both in respect of the issue and of each property; (k)Assistinginobtaining/draftingcorporate,regulatory and third party resolutions, consents, approvals, notificationsorappropriatewaivers/exemptions (ifrequired); (l) Assistingindrafting/reviewingtheOffering Memorandum to ensure it complies with the disclosure requirements; (m)Conductinglegalduediligenceontheassetstobe acquiredandtheVendorsofsuchproperty; (n) Providinganyotherservicesthatmayberequiredofthe legal advisor from time to time; and (o) ProvidinggenerallegalguidancetothePromoterand the REIT Manager and the transaction team throughout.
17.2.3 Contract with Project Manager CertifierServices to be provided include:
(a) TheProjectManagerCertifiershallmonitorandsubmit a report to the Trustee and the REIT Manager on a monthlybasison- (i) Whetherornottheworkhasbeencompletedin accordance with the budget, project plan and payment schedule or any variations prepared by the REIT Manager and approved by the Trustee; (ii) Whetherscheduledpaymentsshouldbedisbursed by the trustee to meet the work undertaken, costs of or connected with the development or construction; (iii)Thecostsofanyproposedvariationofscheduled works or proposed acquisition of plant and equipment; and (iv)Theestimateofthecostandtimerequiredto complete the development and construction work relative to the budget and project plan.
(b) Inconnectionwiththeproject,theProjectManager Certifiershallrecommendthedisbursementoffunds bytheTrustee- (i) Wheresuchpayments- 1. are in accordance with the budget, project plan and payment schedule approved by the trustee; or 2. are varied and approved by a meeting of the REIT Securities Holders where the total cost of variationismorethan15%ofthebudgeted costs; or (ii)WheretheTrusteeis- 1. of the opinion that disbursement is necessary to protect the assets of the fund and the interests of REIT Securities Holders; and 2. satisfiedwiththeactionwhichtheREIT Manager proposes to implement to rectify any problem.
17.2.4 Contract with Structural EngineerServices to be provided include:
(a) TheStructuralEngineershallensurethatthestate ofrepairofthespecificrealestateproperty, including the services, systems and material plant and equipment, is independently assessed, latent defectsidentifiedandthatthesefactorsare- (i) takenintoconsiderationinanyvaluation;and (ii) disclosedintheOfferingMemorandum. (b)TheStructuralEngineershall- (i) Conductanappraisalofaspecificrealestate property which is proposed to be acquired; and (ii) PrepareandsubmittotheREITManagerandthe trusteeareporton- 1. the state of repair of the proposed property, services, systems and material plant and equipment; 2. any latent defects and the cost, if any, which is likely to be incurred in remedying such defects or in bringing the property to a reasonable state of repair; and 3. any limitation in the engineer’s ability to make a full assessment and whether additional professional assessment, input or reports are required.
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18 Overview of the Project to be Undertaken
18.1 Greenwood CityGreenwood City is a mixed use commercial development whichincludesagradeAshoppingmall,asixstoreyofficeblock and luxury executive apartments sitting on a prime 6 acre plot in Meru County. The development will be a high end mixed use facility serving Meru town and its environs. The target market is middle income Kenyans from the surrounding environs who are currently under-served inthe retail space.With a population of about 1.5 million
Name Number of Shares Percentage
TTAfricaRealEstateCompany 1,915,647 52.4%
Binder Limited 1,200,000 32.8%
FusionCapitalLimited* 539,200 14.8%
TOTAL 3,654,847 100%
18.3 Intentions of the Transferors and Lock-Up Period (a) TheTransferorsoftheassetssetoutinSection18.2. above will, in exchange for the assets therein set out, subscribeforupto37,776,440unitsinFRED- COMMERCIALortheequivalentofKES868,858,099. Thistranslatestoa37.78%ownershipstakein FRED-COMMERCIALassumingthatallREITunits are taken up;
(b) Furthermore, the Transferors, will not reduce their holdinginFRED-COMMERCIALtobelow10%oftheir initialinvestmentassetoutin18.3(a)aboveinthe two years following the date of listing of the Units on the NSE.
SOURCES USES
Source Amount (KES mm) Percentage Use Amount
(KES mm) Percentage
REITUnits-Share Swap w/ SPVOwners
868.86 23.33% Acquisition 325.00 8.73%
REITUnits-Cash 1,431.14 38.42% Construction(Total) 2,457.22 65.97%
Bank Debt 1,424.64 38.25% Office 7,28.59
Retail 1,204.33
Apartment 407.29
Contingency 117.01
ProfessionalFees 573.42 15.40%
Marketing 60.84 1.63%
FinanceCost 308.16 8.27%
TOTAL 3,724.64 100.00% TOTAL 3,724.64 100.00%
people and an urban population of over 30,000 people, the supply of quality shopping facilities is nonexistent and we intendtobethefirstentrantintothisspace.Themallwillhouse among others regional food, leisure, clothing and electronics brands in one central, convenient location. This developmentisastandardbuild-to-sellprojectwithprojectlength expected to be 36 months.
*shares held in trust for Fusion African Access (2011) Limited Partnership (FAALP)
18.2 Ownership of SPV
Meru Greenwood Park Limited
18.4 FRED - COMMERCIAL Sources and Uses of Funds
ThetablebelowsummarisesFRED-COMMERCIAL’sSourcesandUsesofFunds
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18.5 Proforma Project Time Scale and Phasing
PHASE
Greenwood City
FRED - COMMERCIAL TIME SCALE AND PHASING
START DATE DURATION END DATE
201720162015
H2 H1 H2 H1 H2 H1 H2 H1
2018 2019
Purchase Oct-15 0 Oct-15
Pre-Construction Oct-15 3 Dec-15
Construction Jan-16 24 Dec-17
Post Development Jan-18 12 Dec-18
Marketing Jan-16 36 Dec-18
Income Flow Jan-18 12 Dec-18
Sale Jan-19 1 Jan-19
18.6 Regulatory Approvals
Project Property No. Approval Status
Greenwood CityL.R Meru Municipality Block 1/3
BuildingApproval(Structural&Architectural) Apr-15
NEMAApproval May-15
National Land Commission No Concerns Raised
Meru Greenwood Park Limited Board ResolutionapprovingsaleofsharestoFRED-Commercial.
To be completed within 30 days of close of offer
CompetitionAuthorityofKenya To be submitted within 30 days of the close of offer
18.7 Greenwood City Project Status Update - May 2016 In May 2016 Co-operative Bank, the appointed REIT
TrusteeofFRED-Commercial, commissionedaValua-tionReportbyKnightFrankValuersLimitedandaProjectStatus Report by Howard Humphreys Limited to provide REIT investors with an updated project status as of May 2016.
The terms of reference of the reports are as follows; ValuationReport • CurrentMarketValuationoftheproperty(Landand
Improvements)locatedatMeruMunicipalityBlock 1/3 – Meru Town
• MarketValuationoftheprojectat100%completion
Project Status Report • CurrentStatusofWorks; • ProgressofworksasperthecontractBillof Quantities • Currentstateofprojectimplementationagainst
the submitted program of works • Issuesthathavebeenencounteredinthe
project that affect the time, cost and quality of the project • Summaryofactivitiescompletedby the contractor • FinancialStatusofWorks; • Summaryoftheconstructioncontract • CompetitivenessoftheBillofQuantities • Comparethecurrentgrossvalueofworkas perlastinterimcertificatewithcurrentstatus of the ground • Projectvariationsandfinancialappraisals. • ComparetheQuantitySurveyorvaluationwith Contract Bill of Quantities • AccessConstructionContractrisk • Identifymainmaterialsandplantand equipment on site • SiteHealthandSafety • AdviceandRecommendations; • ProjectChallenges • ProjectSchedule • ProjectBudget
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SummariesoftheValuationandProjectStatusreportsareprovidedbelow.Thecompletereportsareincludedwiththedocuments available for inspection.
18.7.1 Summary of May 2016 Valuation Report
HereisasummaryofthePropertyValuationReportdated21stMay2016byKnightFrankValuersLimited
Address MeruGreenwoodParkonTitleNo.MeruMunicipalityBlock1/3-MeruTown.
Location The property is located approximately 50 metres off Meru – Chuka – Embu Road, and alongMwendantu Road, Meru Town – Meru County.
Description Greenwood park is a mixed development that is currently under construction.It’sdesignedtocompriseashoppingmall,officeblockandresidentialapartments.
Areas Thedevelopmentisonasiteextendingto2.444Hectares(6.04acres)approximately.
Tenure Leasehold title for 66 years from 1st January 1974 registered in the name of Meru Greenwood Park Limited. Remaining unexpired lease period is 24 years.
Approvalforextensionofleaseforninetynine(99)yearswitheffectfrom1stMay2016hasbeengranted by the National Lands Commission subject to conditions.
Planning Applicationforapprovalforthisdevelopment(ApplicationNo.0079-2015)wassubmittedon14thMay2015 to theMeruCountyGovernment (Lands, ICT&PlanningDepartment) andapproved(subjecttoconditions)onthe18thMay2015.
Proposed development The proposed development will comprise of a shoppingmall, (27,081 SQ.M), GradeA officeblock(16,077SQ.M)and53No.2and3bedroomapartmentsblock(7,881SQ.M)providedwithparking(bothbasementandgradeparking)andutilitydevelopments&areas(5No.gatehouses,water reticulation installations, foul drainage, foot paths, fencing access gates and other associated services)allonasix(6)acreplot.
Valuationconsiderations
• Theprojectedincometobegeneratedfromlettingandprofessionalmanagementoftheshoppingmall/officeblock,andsellingoftheresidentialapartments• Successfulcompletionofthedevelopmentaspertheapprovedbuildingplansanddesignspecificationandwithinschedule• Compliance toMeruCountyGovernment approval andNationalEnvironmentManagement
Authority(NEMA)projectapprovalconditions• ThattheconditionssetoutbytheNationalLandsCommissionforextensionofleasewillbemet
andanewninetynine(99)yearsleaseissued• ThattheconditionssetoutbytheMerucountygovernmentforapprovalofthedevelopment
will be met and adhered to
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Valuationdate 17th May 2016
ValuationSummary Description Value (KSH) At current stage of completion (21% completion)
Assuming 100% completion
MarketValuei)Landii)Buildings
330,000,000561,000,000
330,000,0003,350,000,000
Total 891,000,000 3,680,000,000
Market Value Assuming 100% Completion & 100% occupancy achieved by January 2018 3,800,000,000*
ForcedSaleValue 668,000,000 2,760,000,000
InsuranceValue(GrossReplacementcost)
i)Shoppingmallii)OfficeBlockiii)ResidentialApartmentsiv)UtilityBuildingv)Siteworks
306,000,000165,500,00089,400,000
--
1,369,000,000736,000,000400,000,00013,000,00029,000,000
Total 560,900,000 2,547,000,000
AnnualMarketRentasatMay2016assuming100%constructioncompletionand100%occupancy.
i)ShoppingMallii)Offices
250,500,00093,000,000
Total 343,500,000
* Note: while working out this value, a discount rate has been applied to discount the developmentsvalueofKsh.4,350,000,000(asatJanuary2018)toKsh.3,800,000,000(asat17thMay 2016). This has been done appreciate the time value of money.
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Thevaluationreportgivesthecurrentmarketvalueoftheproperty(LandandImprovements)locatedatMeruMunicipalityBlock 1/3 Meru Town as of 17th May 2016. Given the current market valuation of the land and improvements as provided inthevaluationreport,theNetAssetValueofMeruGreenwoodParkLimitedasofMay17th2016issummarizedbelow.
Meru Greenwood Park Limited May 2016 Net Asset Valuation
Assets Marketvalueofland* 330,000,000.00ContractorWorkDone 547,004,827.00OtherWorkInProgress 186,660,116.83Accountsreceivable 70,000,000.00TotalCallDepositAcc 5,007,237.34Deposit-LegalFees 5,800,000.00Withholdingtax 1,894,295.62Cash&cashequivalents 12,948,079.51
Total value of assets 1,159,314,556.30 Liabilities Certificates Payable 239,382,127.00Accountspayable 14,125,611.90Otherpayables 13,506,424.50
Total value of liabilities 267,014,163.40 Net Asset Value* 892,300,392.90
18.7.2 Summary of May 2016 Project Status Report
i) CurrentStatusofWorks Progress of Works as Per the Contract Bill of Quantities Constructioncommencedon18thSeptember2015.Todatetheconstructionworksareapproximately21%complete. The following is the physical status on site:
Main Works Physical status
Retail mall: • Basementstructurecomplete.• Groundfloorslabcomplete.• 1stfloorlevel-hollowpotforsuspendedslabbeinglaid.
Officespace: • Basement02structurecompleteincludingtheramp.• Basement 01 columns and slab - formwork, reinforcement. Fixing and concrete
casting ongoing.Apartments: • Backfillingaroundfoundationsongoing.
• Groundbeams–formworkandreinforcementfixingongoing.External works: • Siteclearedofvegetationandpre-existingbuildings.
Mechanical Services: Physical Status Mechanical
Retail mall: • DrainagepipeworkandBasementsumps• Drainagepipeworkongroundfloorslab• Mostofmechanicalcostwouldbecapturedundermaterialonsite
Officespace: • Drainagepipeworkandsumps• Drainagepipework• Mostofmechanicalcostwouldbecapturedundermaterialonsite.
*Note: The REIT will purchase Meru Greenwood Park at the original September 2015 Net Asset Valuation (Kes. 868,858,099) as referenced in section 22 of this document. The above Net Asset Valuation (Kes. 892,300,392) is for investor information only.
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Current State of Project Implementation against the Submitted Program of Works
Revised Program of Works Start Finish Current Status
PROPOSEDSHOPPINGMALL 2016/1/22 2017/6/24Substructures 22nd January 2016 14th March 2016 Substructures completeReinforced Concrete and Staircase 6th March 2016 7th September 2016GroundFloor 2016/3/6 2016/4/24GFSlabandbeam(S1) 2016/3/6 2016/4/7 GroundfloorslabcompleteFormwork 2016/3/6 2016/3/23 GroundfloorslabcompleteReinforcementsteelfixing 2016/3/19 2016/4/5 GroundfloorslabcompleteCasting the concrete 2016/4/6 2016/4/7 GroundfloorslabcompleteGFColumn(S1) 2016/4/8 2016/4/15 GroundfloorslabcompleteGFSlabandBeam(S2) 2016/3/15 2016/4/16 GroundfloorslabcompleteFormwork 2016/3/15 2016/4/1 GroundfloorslabcompleteReinforcementsteelfixing 2016/3/28 2016/4/14 GroundfloorslabcompleteCasting the concrete 2016/4/15 2016/4/16 GroundfloorslabcompleteGFColumn(S2) 2016/4/17 2016/4/24 Groundfloorslabcomplete
Level01(ShoppingMall) 2016/4/16 2016/5/30 Hollow pot laying ongoingLevel02(ShoppingMall) 2016/5/17 2016/6/30 Not commencedLevel03(ShoppingMall) 2016/6/17 2016/7/31 Not commencedRoofingandRainwaterGoods 2016/7/25 2016/9/7 Not commenced
PROPOSED OFFICE BLOCK
Substructures 27th January 2016 12th June 2016Bulk Excavation 27th January 2016 5th February 2016 Bulk excavation doneBasement Level - 02 22nd March 2016 21st April 2016 Basement level 02 slab and columns
doneBasement Level - 01 20th April 2016 12th June 2016 Basement01-formwork,
reinforcementfixingandconcretecasting for both columns and slab ongoings
PROPOSED APARTMENT BLOCK
Substructures 27th January 2016 25th February 2016 Bulk excavation doneReinforced Concrete and Staircase 26th February 2016 8th November 2016Base and foundation 2016/2/26 2016/4/10 Strip foundation done.
Ground beams ongoingGroundFloor 2016/4/11 2016/4/11 Not commencedLevel01(Apartment) 2016/5/3 2016/5/22 Not commenced
Mechanical Services: Physical Status Mechanical
Apartments: • Mechanicalserviceshavenotcommenced• Materialsonsiteformmechanicalcosts
External works: • Mechanicalserviceshavenotcommenced• Materialsonsiteformmechanicalcosts
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ii) FinancialStatus Construction Contract Summary
Project Name: The Proposed Meru Greenwood Park, Meru Town, Meru County.
Developer: Meru Greenwood Park Ltd P.OBox47538-00100,Nairobi
Contract Duration: 100 weeks
Contract Commencement Date: 18thSeptember2015
AnticipatedCompletionDate: 11thAugust2017
Time elapsed: 35%
Revisions to completion date: None
%ofworkdone: 20%
%ofexpectedwork(aspertheprogramofworks): 30%
Tender amount: Kshs2,522,074,929
Corrected Tender amount: Kshs2,516,167,844
Contract Sum: Kshs 2,296,109,669.00
AuthorizedAdditions: None.
AuthorizedOmissions: None.
AmountCertifiedtoDate: Kshs 380,742.800.00 (Exclusive of advance payment andincludingApril2016valuation).
Percentageofamountcertified: 16.58%
* Note: The construction period in the main contract ends on the 11th ofAugust2017.Initialdelaysinmobilizationand excavation have been accounted for in this Offer Memorandum by modeling the project completion date as 31st December2017.
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Asummaryofthe5yearpro-formaIncomeStatements,BalanceSheet,andCashFlowsforFRED-Commercialispresented in the following below.
19.1 Income Statements
19 Pro-forma Financial Information
FUSION REAL ESTATE DEVELOPMENT TRUST - COMMERCIAL
PROJECTED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDING 31 DECEMBER 2016 TO 31 DECEMBER 2019
2016 2017 2018 2019 Sh’000 Sh’000 Sh’000 Sh’000 Income - - 904,780 4,025,240Costofsales - - (619,950) (2,758,090) Grossprofit - - 284,830 1,267,160 Expenditure: Managementfee (23,340) (46,680) (46,680) (7,780)Trusteefee (5,840) (11,670) (11,670) (1,950) Total expenditure (29,180) (58,350) (58,350) (9,730) Loss for the year (29,180) (58,350) 226,480 1,257,430 Othercomprehensiveincome - - - - Total comprehensive loss for the year (29,180) (58,350) 226,480 1,257,430
2016 2017 2018 2019 Sh’000 Sh’000 Sh’000 Sh’000 Non current assets Constructionandworkinprogress 1,784,800 3,443,540 - -
Current assets Inventory - - 2,878,410 -Bankandcashbalances 486,020 - 65,510 3,696,380 486,020 - 2,943,920 3,696,380
Total assets 2,270,820 3,443,540 2,943,920 3,696,380 Equity and liabilities Capital and reserves Share capital 2,300,000 2,300,000 2,300,000 2,300,000Accumulated(deficit)/reserves (29,180) (87,530) 138,950 1,396,380 Shareholders’ funds 2,270,820 2,212,470 2,438,950 3,696,380 Non current liabilities Borrowings - 1,231,070 504,970 - Total equity and liabilities 2,270,820 3,443,540 2,943,920 3,696,380
19.2 Balance Sheet
PROJECTED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016 TO 31 DECEMBER 2019
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19.3 Cash Flow Statement
PROJECTED STATEMENT OF CASHFLOWS FOR THE YEARS ENDING 31 DECEMBER 2016 AND 31 DECEMBER 2017
2016 2017 2018 2019 Sh’000 Sh’000 Sh’000 Sh’000 Cash flows from operating activitites (Loss)/profitbeforetaxation (29,180) (58,350) 226,480 1,257,430Costofconstructionandworkinprogress (1,784,800) (1,658,740) - -Transferofworkinprogresstoinventory - - 3,443,540 -(Increase)/decreaseininventory - - (2,878,410) 2,878,410
Net cash (used in)/generated from operating activities (1,813,980) (1,717,090) 791,610 4,135,840
Cash flows from financing activitites FundingreceivedfromREITsissue 2,300,000 - - -Fundingreceivedfromborrowings - 1,231,070 - -Loanrepayment - - (726,100) (504,970) Net cash generated from/(used in) financing activities 2,300,000 1,231,070 (726,100) (504,970)
Increase/(decrease) in cash and cash equivalents 486,020 (486,020) 65,510 3,630,870 Cash and cash equivalents Atthebeginningoftheyear - 486,020 - 65,510 Cash and cash equivalents At the end of the year 486,020 - 65,510 3,696,380
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20.1 Key Assumptions
Greenwood City
ConstructionTime(Months) 24
ConstructionCost*
OfficeRentableSpace(KES/sf) 7,233.50
RetailRentableSpace(KES/sf) 8,919.52
ApartmentRentableSpace(KES/sf) 6,775.99
InterestRates(%) 16
Sales*
Office((KES/sf) 12,000.00Retail(KES/sf) 21,591.10
Apartment2BedroomTypeA(KES/Unit) 10,300,000
Apartment2BedroomTypeB(KES/Unit) 10,000,000
Apartment3Bedroom(KES/Unit) 13,000,000
*Basedonnetlettablearea
20 Key Assumptions and Sensitivity Analysis
20.2 Sensitivity Analysis
Thetablesbelowsummarizetheeffectofthekeyassumptionsaboveontheexpectedprofits(KESmillions)andinternalrateofreturn(IRR)afterfeesontheinitialprojectofFRED-COMMERCIAL.
PleasenotethattheseareforwardlookingstatementsasexplainedinSection1-“ImportantNotice”above.Inaddition,these expectations may differ from the performance of the REIT units.
20.2.1 Construction Period: Base Case
Construction: Cost pm²
-30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00%
Sale
s: P
rice
/ Uni
t
30.00%3,856.57 3,507.87 3,121.77 2,720.62 2,315.47 1,906.97 1,496.36 55.97% 49.37% 43.87% 38.70% 33.58% 28.43% 23.14%
20.00%3,205.54 2,857.98 2,475.30 2,074.15 1,669.00 1,260.50 849.89 49.02% 42.40% 36.72% 31.33% 25.92% 20.40% 14.65%
10.00%2,711.60 2,365.20 1,985.93 1,584.78 1,179.63 771.13 360.5243.39% 36.74% 30.90% 25.29% 19.60% 13.70% 7.48%
0.00%2,327.63 1,982.39 1,606.51 1,205.38 800.23 391.73 (19.07)38.76% 32.08% 26.10% 20.28% 14.31% 8.05% 1.67%
-10.00%2,023.64 1,679.56 1,306.12 905.96 500.81 92.31 (318.49)34.92% 28.21% 22.10% 16.09% 9.86% 3.24% 1.65%
-20.00%1,779.61 1,436.71 1,064.88 666.53 261.37 (147.30) (557.92)31.72% 24.97% 18.75% 12.56% 6.08% 1.68% 1.64%
-30.00%1,581.69 1,239.66 869.60 473.23 68.08 (340.59) (751.21)29.03% 22.25% 15.94% 9.59% 2.88% 1.67% 1.63%
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The financial model prepared by the Lead TransactionAdvisor assumes a base case construction period of 24months and a post development period of 12 months during which the REIT earns rental income. Table 20.2.1 shows the changeintheexpectedprofitsandinternalrateofreturnwhenthe construction cost per square metre changes in a range of -30%to+30%asdescribedinthetoprowandchangesinsales price per unit in a similar range. For instance a 0%
changeinconstructioncostsanda0%changeinsalespriceswillresultinaprofitofKES1,205.38millionandanIRRof20.28%.Ifconstructionpricesdecreaseby30%andsalespricesincreaseby30%overthe24monthsconstructionperiod,thenweexpecta profit of 3,856.57million and IRRof 55.97%.Conversely, ifconstructionpricesincreaseby30%andsalespricesdecreaseby30% thenwe expect a loss (highlighted in red) ofKES751.21millionandanIRRof1.63%.
20.2.2 Construction Period: + 6 Months (30 Months)
Construction: Cost pm²
-30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00%
Sale
s: P
rice
/ Uni
t
30.00%3,623.70 3,262.34 2,885.06 2,501.10 2,112.10 1,719.49 1,324.26 56.65% 50.08% 44.17% 38.55% 33.06% 27.58% 22.00%
20.00%2,972.94 2,612.45 2,235.18 1,851.21 1,462.21 1,069.60 674.37 48.85% 42.24% 36.21% 30.39% 24.61% 18.76% 12.72%
10.00%2,479.20 2,119.67 1,742.39 1,358.43 969.43 576.82 181.40 42.51% 35.85% 29.69% 23.66% 17.61% 11.38% 4.85%
0.00%2,095.34 1,736.86 1,359.58 975.62 586.62 193.83 (201.41)37.28% 30.57% 24.28% 18.06% 11.73% 5.13% 1.69%
-10.00%1,791.47 1,434.03 1,056.75 672.79 283.79 (109.00) (504.24)32.94% 26.18% 19.76% 13.35% 6.75% 1.73% 1.64%
-20.00%1,547.58 1,191.18 813.91 429.94 40.78 (351.84) (747.09)29.30% 22.49% 15.96% 9.37% 2.52% 1.69% 1.59%
-30.00%1,349.79 994.48 617.20 233.09 (155.92) (548.55) (943.79)26.24% 19.39% 12.75% 5.99% 1.75% 1.65% 1.56%
In the above scenario the construction period is extended by 6 months i.e. the total construction period changes from the base caseof24monthsto30months.A0%deviationoftheconstructioncostand0%deviationsalespriceoverthe36monthswouldyieldaprofitofKES975.62millionandanIRRof18.06%.
20.2.3 Construction Period: + 12 Months (36 Months)
Construction: Cost pm²
-30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00%
Sale
s: P
rice
/ Uni
t
30.00%3,392.67 3,043.65 2,683.05 2,314.98 1,941.78 1,564.09 1,183.47 57.73% 50.67% 44.27% 38.24% 32.41% 26.64% 20.84%
20.00%2,741.57 2,392.55 2,031.94 1,663.88 1,290.68 912.99 532.3749.02% 41.95% 35.47% 29.27% 23.19% 17.09% 10.85%
10.00%2,247.57 1,898.55 1,537.95 1,169.88 796.68 418.82 38.18 41.89% 34.82% 28.24% 21.88% 15.56% 9.12% 2.45%
0.00%1,863.55 1,514.53 1,153.92 785.85 412.49 34.79 (345.85)36.00% 28.91% 22.24% 15.72% 9.17% 2.42% 1.65%
-10.00%1,559.50 1,210.48 849.87 481.66 108.45 (269.26) (649.90)31.08% 23.98% 17.23% 10.56% 3.80% 1.69% 1.55%
-20.00%1,315.44 966.42 605.81 237.59 (135.61) (513.32) (893.96)26.95% 19.84% 13.02% 6.23% 1.76% 1.61% 1.48%
-30.00%1,117.52 768.50 407.75 39.67 (333.53) (711.24) (1,091.88)23.48% 16.37% 9.49% 2.59% 1.69% 1.54% 1.42%
In the above scenario the construction period is extended by 12 months i.e. the total construction period changes from the base caseof24monthsto36months.A0%deviationoftheconstructioncostand0%deviationsalespriceoverthe36monthswouldyieldaprofitofKES758.85millionandanIRRof15.72%.
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20.2.4 Construction Period: + 18 Months (42 Months)
Construction: Cost pm²
-30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00%
30.00% 3,181.58 2,846.08 2,498.48 2,142.41 1,780.54 1,413.75 1,043.48 59.32% 51.74% 44.88% 38.47% 32.30% 26.22% 20.11%
20.00% 2,532.65 2,197.32 1,849.94 1,494.13 1,132.55 766.05 396.10
49.66% 42.08% 35.15% 28.58% 22.16% 15.74% 9.17%
10.00% 2,040.52 1,705.45 1,358.17 1,002.62 641.20 274.97 (95.92)
41.70% 34.13% 27.13% 20.42% 13.78% 7.05% 1.82%
0.00% 1,658.33 1,323.27 976.22 620.73 258.53 (107.66) (477.23)
35.08% 27.53% 20.49% 13.66% 6.81% 1.82% 1.61%-10.00% 1,355.88 1,021.05 674.00 317.76 (43.40) (409.46) (778.80)
29.54% 22.04% 14.97% 8.03% 1.87% 1.65% 1.48%-20.00% 1,113.40 778.58 430.90 75.51 (285.51) (651.42) (1,020.74)
24.90% 17.45% 10.36% 3.38% 1.72% 1.53% 1.38%-30.00% 917.04 582.22 234.56 (120.62) (481.64) (847.45) (1,216.58)
21.01% 13.62% 6.55% 1.83% 1.61% 1.44% 1.31%
Sale
s: P
rice
/ Uni
tSa
les:
Pric
e / U
nit
In the above scenario the construction period is extended by 18 months i.e. the total construction period changes from the base caseof24monthsto42months.A0%deviationoftheconstructioncostand0%deviationsalespriceoverthe42monthswouldyieldaprofitofKES620.73millionandanIRRof13.66%.
20.2.5 Post Development Period: + 6 Months
Construction: Cost pm²
-30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00%
30.00% 4,062.66 3,713.94 3,326.52 2,895.58 2,456.91 2,014.62 1,570.0547.21% 41.67% 36.99% 32.78% 28.56% 24.24% 19.74%
20.00% 3,411.63 3,064.06 2,681.36 2,254.08 1,815.42 1,373.13 928.5541.99% 36.41% 31.57% 27.12% 22.61% 17.93% 12.99%
10.00% 2,917.69 2,571.28 2,191.99 1,769.69 1,331.02 888.73 444.16 37.76% 32.13% 27.15% 22.48% 17.70% 12.66% 7.26%
0.00% 2,533.72 2,188.46 1,812.58 1,395.27 956.60 514.31 69.74 34.28% 28.60% 23.51% 18.63% 13.59% 8.21% 2.36%
-10.00% 2,229.73 1,885.63 1,512.18 1,100.83 662.16 219.87 (224.70)31.39% 25.66% 20.46% 15.42% 10.13% 4.43% 1.39%
-20.00% 1,985.70 1,642.79 1,270.94 866.37 427.70 (14.59) (459.16)28.97% 23.20% 17.91% 12.72% 7.21% 1.40% 1.39%
-30.00% 1,787.78 1,445.73 1,075.67 676.09 239.39 (202.90) (647.47)26.95% 21.13% 15.75% 10.45% 4.74% 1.40% 1.39%
The above scenario assumes that the post development period is extended by 6 months i.e. the total post development period changesfromthebasecaseof12monthsto18months.A0%deviationoftheconstructioncostand0%deviationsalespriceoverthe36monthswouldyieldaprofitofKES1,395millionandanIRRof18.63%.
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Sale
s: P
rice
/ Uni
tSa
les:
Pric
e / U
nit
20.2.6 Post Development Period: + 12 Months
Construction: Cost pm²
-30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00%
30.00% 4,268.86 3,920.14 3,532.72 3,085.95 2,611.00 2,132.13 1,650.7841.36% 36.55% 32.43% 28.76% 25.13% 21.37% 17.40%
20.00% 3,617.83 3,270.26 2,887.56 2,449.94 1,974.99 1,496.11 1,014.77 37.26% 32.40% 28.14% 24.26% 20.36% 16.25% 11.86%
10.00% 3,123.89 2,777.47 2,398.19 1,971.03 1,496.08 1,017.20 535.8633.94% 29.02% 24.65% 20.57% 16.41% 11.98% 7.16%
0.00% 2,739.92 2,394.66 2,018.77 1,599.69 1,127.14 648.27 166.92 31.21% 26.24% 21.76% 17.52% 13.13% 8.38% 3.15%
-10.00% 2,435.93 2,091.83 1,718.38 1,307.02 838.18 359.31 (122.04)28.95% 23.92% 19.35% 14.97% 10.37% 5.33% 1.19%
-20.00% 2,191.90 1,848.99 1,477.14 1,072.57 609.21 130.34 (351.01)27.07% 21.98% 17.33% 12.84% 8.06% 2.75% 1.19%
-30.00% 1,993.98 1,651.93 1,281.86 882.29 426.38 (52.49) (533.84)25.51% 20.35% 15.63% 11.04% 6.12% 1.20% 1.19%
The above scenario assumes that the post development period is extended by 12 months i.e. the total post development period changesfromthebasecaseof12monthsto24months.A0%deviationoftheconstructioncostand0%deviationsalespriceoverthe36monthswouldyieldaprofitofKES1,599.69millionandanIRRof17.52%.
20.2.7 Post Development Period: + 18 Months
Construction: Cost pm²
-30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00%
30.00% 4,475.06 4,126.34 3,738.92 3,290.15 2,778.09 2,259.60 1,738.44 37.19% 32.90% 29.20% 25.89% 22.67% 19.30% 15.70%
20.00% 3,824.03 3,476.45 3,093.76 2,656.13 2,148.01 1,629.53 1,108.37 33.87% 29.53% 25.71% 22.21% 18.74% 15.05% 11.06%
10.00% 3,330.09 2,983.67 2,604.39 2,177.23 1,675.04 1,156.56 635.4031.19% 26.78% 22.86% 19.21% 15.51% 11.52% 7.13%
0.00% 2,946.11 2,600.86 2,224.97 1,805.89 1,312.04 793.56 272.40 29.00% 24.53% 20.52% 16.72% 12.83% 8.55% 3.79%
-10.00% 2,642.12 2,298.03 1,924.58 1,513.22 1,029.02 510.54 (10.62)27.18% 22.65% 18.56% 14.65% 10.59% 6.06% 1.04%
-20.00% 2,398.10 2,055.18 1,683.34 1,278.77 805.99 287.51 (233.65)25.68% 21.09% 16.91% 12.92% 8.73% 3.96% 1.04%
-30.00% 2,200.18 1,858.13 1,488.06 1,088.48 628.80 110.61 (410.55)24.44% 19.78% 15.54% 11.46% 7.18% 2.20% 1.04%
The above scenario assumes that the post development period is extended by 18 months i.e. the total post development period changesfromthebasecaseof12monthsto30months.A0%deviationoftheconstructioncostand0%deviationsalespriceoverthe36monthswouldyieldaprofitofKES1,805.89millionandanIRRof16.72%.
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21 FRED - Commercial Valuation and Valuation Basis
21.1 Valuation SummaryInpreparation for the listingof theunitsofFusionRealEstate Development Trust - Commercial on the NairobiSecurities Exchange, NIC Capital prepared a valuation of theunitsinFRED-COMMERCIAL.Thevaluationisfor100.00%of thevotingdilutedcommonunitsofFRED-COMMERCIAL as ofMarch 13th 2016.This valuationwas performed in preparation of the listing of units on the Nairobi Securities Exchange and the resulting estimate of value should not be used for any other purpose or by any other party for any purpose.
NICCapitalestimatesthattheFairMarketValueofFRED-COMMERCIALtobeKsh3,869million.Assuming100
million units are issued, the value of each unit is estimated to be Ksh 38.69.
In arriving at this opinion of value, NIC Capital relied on a“value inuse”orgoing-concernpremise.Thispremiseassumes that the Company is an ongoing business enterprise with management operating in a rational way withagoalofmaximizingshareholdervalue.
NIC Capital used various valuation approaches to estimate the value of FRED - COMMERCIAL as shown in thesummary below and weight each of the valuation estimates to arrive at a weighted average equity valuation.
Itshouldbenotedthatthisisonlyasummaryofthevaluationreport.AdetailedValuationreportisavailableforinspectionattheofficesoftheTrustee.
Calculated Value Weight Weighted ValueIncome Approach DCFEBITMultipleMethod 3,986.79 25.00% 996.70DCFPerpetuityGrowthMethod 4,129.83 15.00% 619.47CapitalizationofEarnings 4,266.18 10.00% 426.62Market Approach Price/Revenue 3,626.32 2.50% 90.66Price/EBIT 3,988.61 30.00% 1,196.58Price/Earnings 2,271.42 15.00% 340.7Price/Book 2646.14 7.50% 198.46
Total Weighted Equity Value 100.00% 3,869.20
21.2 Overview of Valuation Approaches and MethodsVarious approaches have been used to value FRED -COMMERCIAL.Theapproaches,describedbelow,arethe:
(a) IncomeApproach;and (b)MarketApproach.
Income Approach TheIncomeApproachservestoestimatevaluebyconsideringtheincome(benefits)generatedbytheassetoveraperiodoftime. This approach is based on the fundamental valuation principle that the value of a business is equal to the present worthofthefuturebenefitsofownership.Thetermincomedoes not necessarily refer to income in the accounting sensebuttofuturebenefitsaccruingtotheowner.
The most common method under this approach and the methodusedinthisanalysisintheDiscountedCashflow(“DCF”). The Discounted Cash Flow method discountsprojected future earnings back to present value at a rate thatreflectstheriskinherentintheprojectedearnings.
Market Approach TheMarketApproachcomparesthesubjectcompanytotheprices of similar companies operating in the same industry. Comparable companies can be privately owned or publicly traded where the valuation multiples are determined from the purchase/sale price for the company.Valuationmultiples ofpublicly traded comparable companies are derived from the trading price for the public companies stock as of the date of the valuation.
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22 Asset Valuation and Valuation Basis
22.1 Assets to be vested in the Trust
Subject to the success of this Offer, the following properties will be vested in the Trust:
Asset Project Date of Transfer to The Trust
Valuation (Kes)
Consideration(Cash / Securities)
100%oftheissuedshare capital in Meru Greenwood Park Limited
Greenwood City being developed on Title Number Meru Town Block I/3
Within180daysofthecloseofFRED-COMMERCIALoffer.
868,858,099 37,776,440 Units
Upon completion of the transfer of the entire issued capital inMeruGreenwoodParkLimited to theREIT, FRED -COMMERCIALwillowntheentirerealestateasset.
22.2 Assets Valuer Burbidge Capital Limited carried out an assessment of thefairmarketvalueoftheSPV(“theassets”)asat28thSeptember2015.
Burbidge Capital defines fair market value as the pricewhich might reasonably be expected to be obtained in money or money’s worth, in a sale between a willing buyer and a willing seller, each of whom is deemed to be acting out of self-interest and for gain and both of whom areequally well informed about the business and the markets in which they operate.
In providing their fair market value opinion, Burbidge Capital adopted theAsset-BasedValuationmethodology.Implicit in the use of this valuation methodology is the assumption that the business is a going concern.
22.3 Valuation BasisAsset-basedvaluation methodology estimates the intrinsic value of a common share from the estimated value of the assets of a corporation minus the estimated value of its liabilities and preferred shares.
The estimated market value of the assets is often determined bymakingadjustmentstothebookvalue(carryingvalue)ofassetsand liabilities.The theoryunderlying theasset-based approach is that the value of a business is equal to the sum of the value of the business’s assets.
The asset-based approach is defined in the InternationalGlossaryofBusinessValuationTermsas“ageneralwayof determining a value indication of a business, business ownership interest, or security using one or more methods basedonthevalueoftheassetsnetofliabilities.”
22.4 Valuation SummaryThe valuation of the assets is based on the application of the International Private Equity and Venture Capitalvaluation guidelines (“Guidelines”). These Guidelinesare based on the requirements and implications of the International Financial Reporting Standards (“IFRS”) toensure consistency and comparability of valuation outputs.
The valuation is as at 28thSeptember2015anditisbasedon theasset-basedvaluationmethodology.Thevaluationconsists of:
(a) Themarketvalueofthelandbasedonprofessional valuation report issued by Ngotho Property ConsultantsLimitedinSeptember2015;(b) Constructionworkinprogress;and(c) Netassets(current).
Special Purpose Vehicle Valuation Methodology Fair Value
MeruGreenwoodParkLimited NAV KES868,858,099
Total Fair Value KES 868,858,099
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22.5 Implications of failure to invest within 180 days
The Regulations outline the implications of failure to invest within 180 days in Regulation 77 as follows:
“(77)Whereaninvestmentinrealestatehasnotbeencompletedoftheperiodspecifiedunderregulation76,thetrustee shall call a meeting of the REIT securities holders within twenty eight days of the expiry of the period for investment for the purpose of -
a) Considering the report by the REIT manager on the reason for the delay in completion;
b) The implications for the holders of investment in the D-REIT;
c) Determining, by special resolution whether- i) The period for registration should be extended and the period of extension; or ii) All monies paid into the fund together with any interest or earnings should be refunded within fourteen days of the date of the meeting; and iii) What other action should be taken by the trustee or REIT manager.
Failurebythetrusteeto- a) Completetheproposedinvestmentinrealestateshall not constitute an offence; or b) Calltherequiredmeetingortorefundmonieswithin thespecifiedperiodshallconstituteanoffenceon the part of the promoter, the trustee and the REITmanager.”
22.6 Policy in relation to revaluations
The fair value of the properties of the REIT will be determined annually at the reporting date by an independent professionally qualifiedvaluer.IndeterminingthevaluationstheValuerrefersto current market conditions including recent sales transactions of similar properties. In estimating the fair value of the properties, the highest and best use of the property is their use at the end of the project development adjusted by the completion factortoreflecttheconditionasofthebalancesheetdate.
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23 Investment Considerations
23.1 Opportunity for portfolio diversification
Investment in the REIT will give investors an exposure to real estate thus opportunity to diversify the investors’ portfolios.
23.2 Liquidity
Publicly listed REITs are expected to be relatively liquid.
23.3 Opportunities in the real estate sector
Kenya’s real estate sector is geared for growth arising from emerging opportunities including:
Government devolution
Following the promulgation of the new Constitution in2010, Kenya is in the process of implementing devolved government structures. It is anticipated that this will open up the country to investment including increase in real estate property development.
Growing population
Increase in population especially in the urban and peri-urban areas as well as a rising middle class has continued to push up the demand for real estate developments such as housing units and shopping malls.
Investment in infrastructure
The Government of Kenya and its development partners have continued to make huge investments in developing infrastructure across the country. Investment in infrastructure has a knock on effect on the real estate sector by enhancing the capital appreciation potential of real estate properties as well as creating redevelopment opportunities for areas that were hitherto considered inaccessible. Further, investment in infrastructure suchas roads, sewerage systems and water utilities reduces construction costs incurred by the private sector.
23.4 Experienced and incentivized team
FRED-COMMERCIALwillbemanagedbyanexperiencedand dedicated team of professionals with experience in asset management, property management, property acquisitions and disposal and development.
Promoter, REIT Manager and Property Transferors
The Promoter and the REIT Manager are experienced in investment management as well as acquisition and re-developmentofrealestateproperties.FurthertheTransferorsofthepropertiesareretainingasignificantequityportioninthe REIT ensuring that interests are aligned.
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20100.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
5.8%
4.4%4.6% 4.7%
5.3% 5.4%
2011 2012 2013 2014 2015(F)
GDP Growth Rates
Source: World Bank, Kenya National Bureau of Statistics
24.2 Macro-Sector OverviewFinancial IntermediationInQ3 2015, the sector grew by 10.1 per cent comparedto 7.1 per cent growth in Q3 2014. Domestic credit by commercial banks rose by 23.3 per cent in the third quarter of 2015 to 2,785.3 billion. Credit to the private sectorexpanded by 20.9 per cent to KES 2,206.3 billion during the same period of 2015. Broadmoney supply grew by13.5percent in the thirdquarterof2015compared toagrowth of 19.4 per cent recorded in a similar period in 2014. The net foreign asset of the banking system declined by12.8percenttoKES436.5billioninthereviewperiodcompared to a growth of 19.8 per cent over a similar period in 2014.
ConstructionThe sector grew by 14.1 per cent during the third quarter of 2015comparedtothatof8.8percentduringthesameperiodin 2014. The growth was on account of increased public infrastructure projects and private sector development in the real estate sector. Commercial bank credit extended to the sector grew by 27.9 per cent from KES 78,804 million during Q3 2014 to KES 100,827 million during Q3 2015.Cementconsumption,akeyindicatorforthesector,increased by 9.4 per cent in 2015 to reach an estimated1,443,544 metric tonnes from 1,304,257 metric tonnesrecorded in Q3 2014.
24 Economic OverviewCountry Overview
Population,July2015est.(mn) 46
Area(sqkm) 580,367
GDP,2015(US$bn) 60.94
GDP Growth, 2014 5.3%
Inflation,February2016 6.84%
24.1 Kenya Economic PerformanceThe country’s real Gross Domestic Product (GDP) isestimated to have expanded by 5.8 per cent during Q32015 compared to 6.0 per cent in the same quarter of
2014. The quarter was characterized by a fairly stablemacroeconomic environment supported by a slowdown in inflationand robustgrowth inAgriculture;Construction;FinancialandInsurance;WholesaleandRetailsectors.
Source: CIA World Factbook, World Bank, Kenya National Bureau of Statistics
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Country Overview
Population,July2015est.(mn) 46
Area(sqkm) 580,367
GDP,2015(US$bn) 60.94
GDP Growth, 2014 5.3%
Inflation,February2016 6.84%
Cement Consumption (‘000’ Metric Tonnes)
1,000
3,870 3,9374,266
CAGR 10.1% 5,197
5,687
2,000
3,000
4,000
5,000
6,000
2011 2012 2013 2014 2015
Source: Kenya National Bureau of Statistics
Automotive IndustryThe sector is estimated to have grown by 8.7 per cent compared to the 7.8 per cent recorded during the same quarter of 2014. This was attributed to a higher demand for freight services and lower fuel prices. The consumption of light diesel, a key indicator of the sector, increased from 449.3 thousandtonnesintheQ32014to556.6thousandtonnes.
ManufacturingThe manufacturing sector expanded by 2.8 per cent during the quarter under review compared to a growth of 1.5per cent recorded during the Q3 2014. This was partly attributed to the reduced cost of inputs such as electricity anddeclinedinterestratesduringQ32015.Indeed,creditto the manufacturing sector increased to KES 280.4 billion inQ32015comparedtoKES235.1billioninQ32014
ElectricityThesectorrecordedagrowthof11.0percentinQ32015compared to that of 7.2 per cent recorded in Q3 2014. This was mainly attributed to increased share of both geothermal and hydro-electric power generations coupled with asignificantreductioningenerationofthemoreexpensivethermal electric power. Generation by thermal contracted by 44.7 per cent. Geothermal, and hydro expanded by 40.4 and12.7percentduringthethirdquarterof2015.
Balance of PaymentsThebalanceofpaymentspositionworsenedtoadeficitofKES76,804millionduringQ32015KES51,356millioninthesecondquarterof2014.Thecurrentaccountdeficit
narrowedby43.5percenttoKES112,377millionduringthe quarter under review from KES 198,864 million in Q3 2014 attributable to the increase in export value and lower import bill. The value of total exports increased by 23.2 per cent compared to the import bill which decreased by 9.7 percent in the thirdquarterof2015.Theincrease in thevalue of exports was mainly due to increases in the value of exports of food and live animals; manufactured goods, and crude materials.
International trade in services registered a surplus of KES 20,468millioninthethirdquarterof2015fromasurplusof KES 14,964 million recorded in a similar period of 2014.Netfinancialflowsexcludingreservesdecreasedby26.5percentfromasurplusofKES214,464millioninthethirdquarterof2014toasurplusofKES157,615millioninQ32015.
24.3 Macro-Economic Overview
InflationTheOverallinflationhadbeenonanupwardtrendinthelastquarteroftheyear2015butremainedbelowtheCBKmediumtermupperrangetarget.Month-on-monthoverallinflationwas6.84percent inFebruary2016,down from7.78 percent in January. The decline was as a result of declinesinfoodprices.TheAlcoholicBeverages,Tobacco& Narcotics index continued to remain higher than inJanuary 2016 mainly due to higher Excise duty.
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Short Term Interest Rates
13-Feb-
15
13-M
ar-15
13-A
pr-15
13-M
ay-15
13-Ju
n-15
13-Ju
l-15
13-A
ug-15
13-Sep-
15
13-O
ct-15
13-N
ov-15
13-D
ec-15
13-Ja
n-16
13-Feb-
16
3.0%
Interbank Rate 91 day T-Bill 182 day T-Bill 364 day T-Bill
8.0%
13.0%
18.0%
23.0%
28.0%
Source: Central Bank of Kenya
Inflation
Jan-15
4%
5%
5%
6%
6%
7%
7%
8%
8%
9%
Feb-15
Overall Inflation Annual Average Inflation
Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16
Source: Kenya National Bureau of Statistics
Short Term Interest RatesThe monetary policy stance during January 2016 was mostly restrictive. The MPC maintained the Central Bank Rateat11.5percentinJanuary2016sinceJuly2015.Thiswaslargelynecessitatedbytheneedtoanchorinflationaryexpectations in light of increasing aggregate demand pressures and the persistent volatility in the global foreign exchange markets. The short term interest rates and the lending rates increased significantly between SeptemberandOctober2015buteasedofftowardstheendof2015closingtheyearat10.8%,12.8%and13.3%forthe91day,
182day and364dayT-Bill respectively. In2016, short termrateshavedecreasedsignificantly.The91day,182dayand364dayT-Bills closedFebruary 2016 at 9.31 per cent, 11.93 percent and 11.93 per cent respectively. The interbank rate stood at13.25percent.WeexpectthatCBKwillcontinuetocloselymonitor and reign any adverse volatility in the currency and inflationaryexpectations.Inordertoensuremarketstability,theCBKreviewedtheKenyaBanks’ReferenceRate(KBRR)anddecided to retain it at its current level of 9.87 percent.
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Exchange RatesTheshillingfluctuatedduringthefourthquarterof2015,trading within the KES. 100-104 range to the USD. InQ4 2015 the shilling gained against the dollar to closethequarteratKES102.26againsttheUSD.Furthermore,the shilling continued to gain ground against the GBP andtheEurointheperiodtocloseat149.71and109.85respectively.Inthefirsttwomonthsof2016,thelocalunithas generally strengthened against the major currencies. It closedFebruary2016at101.7,141.6and111.5againsttheUS Dollar, Sterling pound and Euro respectively.
The foreign exchange market was stable in the last quarter of 2015 supported by CBK’s monetary policy operations.Furthermore,thecurrentaccountdeficitnarrowed,mainlydueto a lower oil import bill, and a slowdown in consumer imports. Diaspora remittances remained strong. The Central Bank of Kenya’s foreign exchange reserves stands at USD 7,162.2 million(4.58monthsofimportcover)asat25thMarch2016.Thesereserves,togetherwiththePrecautionaryArrangementswith the International Monetary Fund (IMF), continue toprovideanadequatebufferagainstshort-termshocks.
Exchange Rates
USDKES EURKES GBPKES
60.00
80.00
100.00
120.00
140.00
160.00
180.00
2-Jan-14
2-Feb-14
2-Mar-14
2-Apr-14
2-Jun-14
2-May-14
2-Jul-14
2-Aug-14
2-Sep-14
2-Oct-14
2-Nov-14
2-Dec-14
2-Jan-15
2-Feb-15
2-Mar-15
2-Apr-15
2-May-15
2-Jun-15
2-Jul-15
2-Aug-15
2-Sep-15
2-Oct-15
2-Nov-15
2-Dec-15
2-Jan-16
2-Feb-16
2-Mar-16
24.4 Economic overview of MeruMeru is centrally located in Kenya with close proximity toNairobi.The roadnetworkcovers3,640kmwith350km being paved, while 500 km are all-weather (gravel)roads and the remaining are dirt roads. The County enjoys good road network connectivity to neighbouring economic hubs -Nanyuki,Nyeri, Isiolo andEmbu. Further, Isioloairport project is at an advanced stage, with the runway andpassengerterminalalreadyfinished.Therunwaywillbe extended for larger aircraft, making it Kenya’s fifthinternational airport. Another key infrastructure projectis the Isiolo Resort City and Lamu Port Southern Sudan Transport (LAPSSET)Corridorwhichwill pass throughthe County. These planned infrastructure developments will enhance accessibility and further open up the County to real estate development.
The main economic activity is agriculture with a majority being smallholder farmers. The County is also home to a number of national parks and conservation areas, including the massive Meru National Park and the Nyambene National Reserve. The County has a population of 1.5million with 74,000 people living in Meru town. This populationisestimatedtogrowat2.1%.Thecommercialreal estate development is still in its nascent stages while residentialrealestateismostlyconfinedtosingledwellingunits within resident’s land. Growing population, tourism and improved infrastructure are expected to spur growth in the real estate sector.
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Property segment Prime rents Prime yieldsOffices US$ 21 per sq m per month 8 per cent Retail US$ 48 per sq m per month 10 per cent Industrial US$ 4.20 per sq m per month 8 per cent Residential US$4,720permonth* 6 per cent
*4 bedroom executive house in a prime locationSource: Knight Frank Africa Report 2015.
25 Real Estate Sector Overview
Real Estate is considered as one of the principal sectors that not only enhances quality of life but also spurs economic growth in Kenya through the sector’s multiplier effect on the country’sGrossDomestic Product.At present, thehousing sector is characterized by inadequate affordableand decent housing as current demand of 200,000 units per annum continues to outstrip the annual supply of 35,000units. Furthermore, only about 6,000 of annual housingsupply caters for the low income population. This shortage in housing is manifested by overcrowding, proliferation of slums and informal settlements in urban areas and poor quality housing in rural areas. Currently, the levels of homeownershiparelowat16%ofthepopulation(Source:Ministry of Housing). Real Estate has been on a bullishtrend across all segments.
25.1 Property Market Segments
Residential MarketThe residential market in Kenya remains resilient with values and rents maintaining their upward trajectory. The Hass composite letting index showed rents have fallen 0.1 percentsinceQ32015buthaverisenby5.4percentinthelast year. The sales index showed that sales prices increased by9.6percentin2015marginallylowerthan8.3percentincreasewitnessedin2014.TheKenyaBankersAssociationHousing Price Index shows thatQ4 2015 saw prices riseby 1.14 per cent compared to the 1.25 per cent increaseduringtheQ32015.Thelowtomiddle-incomeresidentialmarket remained resilient, with demand for such housing still outstripping supply while the uptake of residential mortgages remained low during 2014.This phenomenon may persist in the present high interest environment as mortgage rates and rent yield spread increases. The property mix is heavily skewed towards apartments. AccordingtoHassConsult, InDecember 2015,Apartments took up59.6%ofthemarket,Semi-detachedHousestookup13.1%of themarketandDetachedHouses tookup27.3%of themarket. The value drivers in the residential Real Estate marketas reportedby theKenyaBankersAssociationarethe property size as measured by plinth area number ofbedrooms, bathrooms and presence of domestic servant quarters. Underlying demand for development land is still very high despite the skyrocketing land prices. Of interest is the demand for land outside Nairobi. Indeed Satellite town land price growth rates track Nairobi’s growth rates. Furthermore,theperformanceoflandhasoutpacedallotherasset classes such as equities, bonds and savings and select commoditiesaccordingtoreportbyHassConsultQ42015Land Index.
Retail Market2015continued to see aproliferationofdecentralizedurbanshopping malls in major cities and towns. Buoyed by an expanding middle class, improved infrastructure and an enduring property boom, shopping malls have continued to extend their penetration outside the capital city as they become the preferred shopping outlets for many middle and high-income consumers in towns. This is further supported by the influx of international brands such asDominos,Cold Stoneand Zara setting up shop locally. Demand for retail space has been driven by the increasing spending power of Kenyan consumers and rising demand for overseas brands.
KnightFrankestimatesthatprimeretailrentsremainataboutUSD 48 per sqm per month. Other developments that broke groundin2015are40,000sqmKarenWaterfront,20,000sqmCrystalRiversinAthiRiverandCedarMallinNanyuki.TheothermajorcompletionwasAnanasMallinThika.TwoRiversMall is expected to open in Q1 of 2016.
Office MarketDemand has continued to be driven by the trend of large corporates setting up regional headquarters in Nairobi, in preference to the traditional regional hub of Johannesburg. Knight Frank reports that there was however lower uptakeofGradeAofficespaceinH12015.Thisisattributedtothelow supply of GradeA office space and the downsizing ofoperations byMultinational firms.Additionally, governmentagencies have been decentralizing their operations fromNairobi to the Counties. Consequently, prime commercial realestaterentshavestabilizedataroundUSD21persqmpermonthinthefirsthalfof2015.
The 2015 Office Space Kenya report conveyed an annualincrease of about 8.67 per cent in rents and 2.92 per cent in sales prices across the main submarkets of Nairobi. They cite demand driven by Banking, Insurance, Financial andProfessional Services sectors.
Industrial MarketThe industrial Real Estate market has largely been owner occupied and far from mature. There has been significantdevelopment along Nairobi’s Mombasa Road. Additionallythere is a growing pipeline of developments in this segment suchasWrigley’proposedKES5.8billionplantinMachakosCounty;ProctorandAllan’sKES1.8billionplantinLimuru;Tatu City in Kiambu and Tilisi in Limuru.
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25.2 Trends in the Housing Market
Number of Completed Buildings
Nairobi (Private Buildings) Residential
2011
4,5124,824
5,447
6,026
505 587 637
2,015
876 926
2430
37600 20
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2012 2013 2014*
Countrywide (Public Buildings) Residential
Nairobi (Private Buildings) Non Residential Countrywide (Public Buildings) Non Residential
Due to the continued improvements in infrastructure by GoK especially on roads, electricity and water, accessibility to theCentralBusinessDistrict (CBD)willbeeasierandhence reduce congestion in the CBD and its proximity. This
Source: Kenya Economic Survey 2015
Note: 2014 statistics are provisional.
will lead to establishment of further property developments in the Nairobi metropolitan areas including Kitengela, Ruiru, Thika and Kiambu. The figure below shows that the government’sexpenditure on Roads is on an upward trend.
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25.4 Growth in value of approved building plansThevalueof buildingplans increased in2015 from228billion in 2013 to 242 billion representing a growth of about 6.1 per cent. This may be attributed to the increased construction cost by the county government of Nairobi.
According toareportby theKenyaPropertyDevelopersAssociation(KPDA),theconstructionpermitfeesincreasedbyafactorofbetween250and1250,frombetween0.001and0.006percentto1.25percentofconstructioncosts.
Expenditure on Roads
Source: Kenya Economic Survey 2015
2010/11 2011/12
KES
‘Bill
ions
’
2012/13 2013/14 2014/150
20
40
6061
92
109
88
120
80
100
120
140
25.3 Private Sector Players in the Housing SectorPrivate sector players have continued to invest in the housing sector attributed to the lucrative returns from investment. The value of completed buildings by the privatesectorgrewbyaCAGRof35percentfromKES35
billionin2010to59billionin2014.Furthermoreapprovedprivate plans increasedby aCAGRof 21per cent fromKES96billionin2010toKES205billionin2014.
2010 2011
50
100
150
200
250
02012 2013
524459
191
135
4035
96113
205
2014*
KES
‘Bill
ions
’
Building Plans Approved Building Works Completed
Source: Economic Survey 2015
Note: 2014 statistics are provisional.
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Value of Approved Building Plans
Residential Non Residential
2011
154
58
75
115141
115
132
96
147
95
2012
50
100
150
200
250
300
350
400
02013 2014 2015
KES
‘Bill
ions
’
Source: Kenya National Bureau of StatisticsSource: Leading Economic Indicators 2015
25.5 Housing market projections
With increasing investment in housing and a numberof incentivesprovided to theprivate sector, it is estimated that 4.3mhousing units will be produced between 2008 and 2030.
Low-Low Income Houses Upper-Low Income Houses Middle Income Houses High Income Houses
2008-2010
29 24
69109 97
61
164
231190
96
238
282
336
145
332 321
550
211
448
332
Hou
sing
Pro
ject
ions
(’00
0)
2011-2015 2016-2020 2021-2025 2026-20300
100
200
300
400
500
600
Source: Ministry of Housing
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25.6 Regulatory frameworkThe Capital Markets Authority introduced a regulatoryframework to promote pooling of investments in real estate assets through Real Estate Investment Trusts (REITs).This is expected to encourage mobilization of savingsfor investment in the housing sector as well as introduce additional capital markets instruments for retail and institutional investors.
In2012,threeActsofParliamentwereenactedandcameinto forceon2ndMay2012–TheLandAct2012;LandRegistration Act 2012; National Land Commission Act2012. The new legislation has brought changes including classification of land; ownership of land by non-Kenyacitizens,creationofchargesonlandamongotherchanges.
25.7 Analysis of Demand for Housing
Rebounding EconomyKenya’s economic growth in the last 10 years and improving macroeconomic environment owing to prudent monetary and fiscal policies has led to greater economic stability,making the country a prime investment destination in the region. Furthermore, GoK’s investment in infrastructuredevelopment has opened up previously inaccessible regions.Acombinationofthesefactorsindicatesthattheoutlook for the property market appears promising.
Growing Middle Income Class Putting Pressure on the Residential SegmentInQ22014,Kenyacrossedthethresholdtobecomealow-middle income country following the rebasing of its National Accounts, including gross domestic product and Gross
NationalIncome.Thesizeoftheeconomywasdeterminedtobe25percentlargerthanpreviouslythought.Kenyaisnowthe5thlargesteconomyinSub-SaharanAfricabehindNigeria,SouthAfrica,AngolaandSudan.
The country’s housing market continues to be driven by middle class Kenyans’ desire to own homes, with demand fromthempushinguppricesandsalesvolumesinthefirsthalf of 2015.Propertydevelopersnow focusonhigh-endproperties targeting the “new” middle class which hasincreasedenormouslyinsizeinrecentyears
The rise in both prices and rents in the middle income segment of the market is expected to exert more pressure on the budgets of middle income households that are experiencing higher-level inflation in housing and energycosts this year.
Over the last ten years, a number of Kenyans have joined the middle income class due to improved economic activities that have opened up new job opportunities. The wage bills have also grown over the period thus leaving the middle income class with reasonable disposal income to invest in capital goods such as housing. The growth in the middle income class on the back of improved economic conditions has resulted in increased demand of residential housings that so far outstretch the current market supply.
Consequently, residential property mostly in the middle and upper income category has seen a price surge. The sales prices are in an upward trend indicating continued appreciation of property values.
Figure 1: Hass Composite Sales Index
Hass Composite Sales Index
Source: Hass Consult Real Estate*Sales Index 2001=100
Q1 2011250
270
290
310
330
350
370
390
410
Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015
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KBA Housing Price Index
Source: Kenya Bankers Association*Housing Price Index 2013=100
Q1 201394
96
98
100
102
104
106
108
110
Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015
Index with Fixed Base Index with moving Base
Remittances from abroadDiasporaremittancescontinuetoincreaseasshowninthefigurebelow.Partoftheremittanceshasremainedinvestedintheproperty market. This trend is expected to continue in the near future creating more demand within the housing sector.
Diaspora Remittances
2011 2012
891
1,1711,291
1,4281,548
2013 2014 2015-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
USD
‘Mill
ions
’
Source: Central Bank of Kenya
East African Community HubTheEastAfricanCommunityisoneofthefastestgrowingregionsintheworld.EconomicgrowthintheEastAfricanregionin2015,accordingtotheAfricanDevelopmentBankisexpectedtooutpacethatofSub-SaharanAfrica(SSA)asawhole, and is expected to accelerateover thenextfiveyears.EACpartnerstatesin2015areexpectedtogrowatanaveragerateof5.6percent,comparedwith4.6percentforSSA.Servicesareovertakingagricultureasdriversofgrowthonaregion-widebasis,withanincreasingamountcontributedbyfinancialservicesandcommunications.
The EAC’s growth has been fuelled by rapidly growingtrade between theEACcountries,which tripled in value
over the last decade and could increase further.TheEAChasalso experienced unprecedented demographic growth, as the population has grownmore than 54 per cent over the last 13years, from 110 million people in 2002 to 170 million people in 2015.
ThegrowthoftheEastAfricanCommunitywillalsoaugerwellfor Kenya as the central hub for the other member countries. This will lead to international corporates with interest in the East AfricanmarkettosetupshopsinKenya.Thiswouldatthesametime create new opportunities both for Kenyans and for other EastAfricans, leading to further demand for housing asmorepeople look to settle in Nairobi and its neighbouring towns.
CAGR14.8%
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26 Accounts & Financial Statements
Board of Directors FusionCaptitalLimitedACKGardenHouse,GroundFloor,WingANairobi
Dear Sirs,
FINANCIAL PROJECTIONS REPORT FUSION REAL ESTATE DEVELOPMENT TRUST - COMMERCIAL FOR THE YEARS ENDING 31 DECEMBER 2016 TO 31 DECEMBER 2019
WehavereviewedtheaccompanyingfinancialprojectionsofFusionRealEstateDevelopmentTrust-Residentialfortheyearsending31December2016to31December2019inaccordancewiththeInternationalStandardonAssuranceEngagementsapplicabletotheexaminationofprospectivefinancialinformation.
Managementisresponsibleforthepreparationandfairpresentationofthefinancialprojectionsincludingtheaccuracyoftheassumptionsonwhichtheyarebased.Ourresponsibilityistoissueareportonthefinancialprojectionsbasedonourreview.
Based on our review of the evidence supporting the assumptions, nothing has come to our attention which causes us to believethattheseassumptionsdonotprovideareasonablebasisforthefinancialprojections.Further, inouropinion,theaccompanying projections are properly prepared and presented in accordance with the accounting policies normally used by FusionRealEstateDevelopmentTrust-Commercial.
Actual resultsare likely tobedifferent fromthefinancialprojectionssinceanticipatedevents frequentlydonotoccurasexpected and the variation may be material.
Yoursfaithfully,
Certified Public Accountants (Kenya)Nairobi, Kenya.6April2016
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FUSION REAL ESTATE DEVELOPMENT TRUST - COMMERCIAL
PROJECTED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDING 31 DECEMBER 2016 TO 31 DECEMBER 2019
PROJECTED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016 TO 31 DECEMBER 2019
2016 2017 2018 2019 Sh’000 Sh’000 Sh’000 Sh’000 Income - - 904,780 4,025,240Costofsales - - (619,950) (2,758,090) Grossprofit - - 284,830 1,267,160 Expenditure: Managementfee (23,340) (46,680) (46,680) (7,780)Trusteefee (5,840) (11,670) (11,670) (1,950) Total expenditure (29,180) (58,350) (58,350) (9,730) Loss for the year (29,180) (58,350) 226,480 1,257,430 Othercomprehensiveincome - - - - Total comprehensive loss for the year (29,180) (58,350) 226,480 1,257,430
2016 2017 2018 2019 Sh’000 Sh’000 Sh’000 Sh’000 Non current assets Constructionandworkinprogress 1,784,800 3,443,540 - -
Current assets Inventory - - 2,878,410 -Bankandcashbalances 486,020 - 65,510 3,696,380 486,020 - 2,943,920 3,696,380
Total assets 2,270,820 3,443,540 2,943,920 3,696,380 Equity and liabilities Capital and reserves Share capital 2,300,000 2,300,000 2,300,000 2,300,000Accumulated(deficit)/reserves (29,180) (87,530) 138,950 1,396,380 Shareholders’ funds 2,270,820 2,212,470 2,438,950 3,696,380 Non current liabilities Borrowings - 1,231,070 504,970 - Total equity and liabilities 2,270,820 3,443,540 2,943,920 3,696,380
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FUSION REAL ESTATE DEVELOPMENT TRUST - COMMERCIAL
PROJECTED STATEMENT OF CASHFLOWS FOR THE YEARS ENDING 31 DECEMBER 2016 AND 31 DECEMBER 2017
2016 2017 2018 2019 Sh’000 Sh’000 Sh’000 Sh’000 Cash flows from operating activitites (Loss)/profitbeforetaxation (29,180) (58,350) 226,480 1,257,430Costofconstructionandworkinprogress (1,784,800) (1,658,740) - -Transferofworkinprogresstoinventory - - 3,443,540 -(Increase)/decreaseininventory - - (2,878,410) 2,878,410
Net cash (used in)/generated from operating activities (1,813,980) (1,717,090) 791,610 4,135,840
Cash flows from financing activitites FundingreceivedfromREITsissue 2,300,000 - - -Fundingreceivedfromborrowings - 1,231,070 - -Loanrepayment - - (726,100) (504,970) Net cash generated from/(used in) financing activities 2,300,000 1,231,070 (726,100) (504,970)
Increase/(decrease) in cash and cash equivalents 486,020 (486,020) 65,510 3,630,870 Cash and cash equivalents Atthebeginningoftheyear - 486,020 - 65,510 Cash and cash equivalents At the end of the year 486,020 - 65,510 3,696,380
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The risks described below are not the only risks which the REITfaces.Additionalrisksanduncertaintiesnotcurrentlyknown to the REIT’s management or that it currently deems to be immaterial may also materially adversely affect theREIT’s business, financial condition or resultsof operations. The order of the risks described below is not intended to be an indication of the probability of their occurrence or the magnitude of the risk.
27.1 Risks Related to the Assets of FRED - Commercial
Political Risk Kenya, like the majority of developing countries, is subject to certain political, economic and social events that may individually or collectively, create risks for investors. Theserisksaremoredifficulttopredictandmeasurethanin developed countries.
As a mitigant, Kenya has a history of relative politicalstability.
Insecurity Risk There has been a rise in the level of insecurity in Kenya due to recent terrorist attacks. The attacks have mostly been concentrated in urban centers of Nairobi and Mombasa. In Mombasa these attacks have had a negative effect on the tourism industry which is the major economic driver of the region. The downturn in the tourism sector has had an effect on the demand of housing in and around Mombasa.
TheinitialdevelopmentprojectofFRED-COMMERCIALis located in an area that is not heavily dependent on the tourism sector. The REIT will take such steps as are appropriate to enhance security within its project sites.
Land Acquisition Risk Acquiring land in Kenya can be risky due to frequentincidents of titles being forged or duplicated and poor record keeping at the Ministry of Lands.
BeforeanylandisacquiredbyFRED-COMMERCIAL,the REIT Manager will ensure that the property undergoes thorough due diligence process to ensure that the title is clear and marketable. In addition in areas that have been known to have land issues in the past, the REIT Manager will seek clearance from the National Land Commission before acquiring such property.
Economic RiskThe growth in the real estate sector is dependent on the continued economic and infrastructure developments with the support of both the public and private sectors.
27 Risk Factors
The economic growth is dependent on the formulation of policies and procedures to support the initiatives of the publicandprivatesectorstoremainprofitableandyieldnetreturns that will maintain current investments and attract other foreign direct investments, bilateral and multilateral aid.
InFebruary2016,InternationalCreditratingagencyfirmMoody’s retained the country’s B1 rating with a stable outlook driven by:(a)Asubstantiallevelofinfrastructurespendingwhichis expected to boost productivity;(b)Arapidlyexpandingservicessector;and(c)Anear-termimprovementinthecountry’stermsof trade.Kenyaiswell-positionedtobenefitfromgreater economicintegrationinEastAfricaoverthecoming years further cementing its economic position within the region. AccordingtoMoody’sFebruaryreport,Kenya’ssizeablefiscal and current account deficits will begin narrowingfromFY2016/17overthenextthreeyearsaspolicymakerspursue a contractionary stance of fiscal policy. This isexpected to reduce Kenya’s reliance on external debt financingandensurefiscalsustainability.Also,asanetoilimporter,Kenya’sexternalposition isalreadybenefittingfrom the decline in oil prices.
Additionally,theWorldBank’sKenyaPublicExpenditureReview December 2014 report noted that: ‘devolution and increased investment in infrastructure are improving Kenya’s prospects for growth and shared prosperity...’ and notes further that: ‘Kenya’s economy has recovered from the negative shocks that it experienced in 2008-09posting an average growth rate of six percent for the past fiveyears’,andaddsthatgrowthwillremainbetween6-7percent to 2017.
Execution Risk Project managers and/or contractors not executing their work in a timely and efficient manner could lead toincreased development costs and/or delayed development period. Cost overruns could lead to a reduction or total wipe out of the projected margins.
The REIT Manager aims to mitigate this risk by entering into fixed price contracts with the contractor to controlcosts. In addition, the REIT Manager will employ its resources, skills and experience in development project managementonalltheprojectsintheD-REITtoenhancedelivery of projects to specification, on time andwithincost.
There are certain risk factors inherent in an investment in the REIT units and the activities of FRED - COMMERCIAL. Investors are therefore advised to carefullyconsider the risks described below as well as other information contained in this Offering Memorandum prior to making an investment decision.
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Demand RiskEconomic or local conditions could lead to decline in demand for the REIT’s properties.
BackedbymarketsurveystheREITManagerisconfidentthat demand and prices for housing and commercial space in the area will continue to rise over the investment period. In addition, the REIT Manager will continually monitor the market so as to stay aware of developing trends and react to any potential adverse changes appropriately. The REIT Manager has a good working relationship with major property selling agents in Kenya, which will be useful in making property sales. The REIT Manager will also look topre-sellingand/orpre-lettingthepropertiesasandwhenpossible.
Market Risk Market conditions are beyond the control of the REIT and are subject to many factors, including economic conditions, government regulations, market sentiment, exchange rates, local and international political events and environmental and technological issues. Market risk may have different impacts on each strategy employed within the REIT. Performance could vary as a consequence despite the REIT’s best efforts to mitigate risk.
TheREITManagerwill continuallymonitor themacro-economic environment so as to stay aware of developing trends and react to any potential adverse changes appropriately.
Currency RiskTheREITmaytakeonexposuretotheeffectsoffluctuationsin the prevailing foreign currency exchange rates on its financialpositionandcashflows.Further, theREITmayraisefundsinforeigncurrency.Asaresult,fluctuationsinforeign currencies could have a material adverse effect on the REIT as well as returns to international investors
The REIT Manager will endeavor to match currencies in financing and operations as closely as possible. TheREIT Manager will also deploy other available currency riskhedgingtechniquestothebenefitofthetrustandtheinvestors.
Interest Rate RiskTheREITmayraisedebttofinanceaportionoftheREIT’sprojects. Terms for interest payments on debt funding exposes the REIT to interest rate risk. An increase ininterest rates could result in a significant increase in theinterest payments resulting in a decrease in distributions to REIT Unit Holders, and could impact the market price of the units. In addition, increasing interest rates may put competitive pressure on the levels of distributable income paid by us to unit holders, increasing the level of competition for capital, which could have a material impact on the trading price of the Units.
FRED - COMMERCIAL seeks to use a conservativefinancingstructure,withatargeteddebttoequityratioof40:60, well below the limit provided for by regulations, in order to cushion the trust from adverse effects of volatility in debt pricing.
Real Estate Market Downturn This is the risk that the real estate market experiences a slowdown in activity such as:
(a) Depressedhousingpricesintheresidentialand commercial real estate markets leading to decline in the pace at which real estate is bought and sold. (b)Declineinthepaceofrealestatedevelopment, which has an effect on the number of construction and contracting jobs that are available.
FRED - COMMERCIAL seeks to use a conservativefinancingstructure,withatargeteddebttoequityratioof40:60, well below the limit provided for by regulations, in order to cushion the trust from adverse effects of volatility in debt pricing
Financing RiskThe real estate industry is capital intensive. The REIT will require access to capital to fund its growth strategy and significantcapitalexpendituresfromtimetotime.Thereisno assurance that capital will be available when needed or onfavorableterms.Failuretoaccessrequiredcapitalcouldadverselyimpactinvestments,cashflows,operatingresultsorfinancialconditionandabilitytomakedistributionsonthe Units.
TheREIT’saccesstothird-partyfinancingwillbesubjectto a number of factors, including:
(a)Generalmarketconditions; (b)Themarket’sperceptionoftheREIT’sgrowth potential; (c)Currentandexpectedfutureearnings; (d)Cashflows;and (e) ThemarketpriceoftheUnits.
TheLeadTransactionAdvisorselectedforthistransactionhas had a good track record raising funds through public offers over the last 5 years. In addition the LeadTransactionAdvisor has notable good relationshipswithkey ‘leaders of the pack’ institutional investors in Kenya. The Lead TransactionAdviser and REITManager havebeen speaking to large Kenyan institutional investors that are deemed to have a pull effect among their peers. Their reception so far has been encouraging.
Further, the REIT Manager has a proven track-recordin raising capital for real estate projects. The REIT will employ multiple strategies to raise required capital and rely onbest inclassadvisors toobtainfinancingas required.TheREITManager uses a flexible financingmodel thatallows the use of debt funding, as required.
Counterparty RiskThe FRED - Commercial will often engage developers,contractors, management or operating companies and joint venture partners in connection with its real estate projects. Challenges or issues with such counterparties could have a material adverse impact on those real estate holdings and on the REIT generally.
Allparties retained toprovide services andgoods to theTrust and its projects will be screened to ensure that no party with credibility or reputational issues is retained.
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27.2 Risks Related to FRED - Commercial’s Securities
Price RiskPublicly-listedrealestateinvestmenttrustsecuritiesmaynotnecessarily trade at values determined solely by reference to the underlying value of the REIT’s real estate properties. Accordingly,theUnitsmaytradeatapremiumoradiscountto values implied by the valuations of the underlying assets. The market prices of the Units could be subject to wide fluctuations. Further, there is no assurance that an activetrading market will develop after the Offer.
The REIT Manager will keep the market updated with appropriate information on the projects. The Lead Transaction Advisor and REIT Manager will target thewidest possible investor base during the initial offer in order toimprovechancesofactivetrading.D-REITsareexpectedto offer substantial number of units, at relatively low offer price, to enhance ease of trade. The Lead Transaction Advisor and REIT Manager are exploring permissiblemarket making strategies to deploy post listing to enhance trading and liquidity.
Regulatory RiskFuture changes in applicable laws and regulations orchanges in their enforcement or regulatory interpretation could result in changes in the legal requirements affecting us (includingwith retroactive effect.Further, aREIT thatfails to meet requirements may lose various tax advantages.
The REIT Manager will keep watch on the regulatory environmentthroughoutthelifeofFRED-COMMERCIALand in the event of a proposed change of regulations that would result in an adverse impact on the D-REIT, usechannels(suchaslobbying)toaddressconcerns.TheREITManagerwillkeepFRED-COMMERCIALcompliant toensurethatthetaxbenefitsdueaccrue.
In addition there is a lack of clarity about the tax treatment of REIT fully owned Investee Companies. The Regulations stipulatethatdistributionsfromanauthorizedREITschemeare exempted from taxation. It is not clear if this tax treatment applies to the fully owned investee companies of a REIT scheme.
The Promoter has raised this concern with the Kenya Revenue Authority and is in the process of getting thisissue clarified. If the determination on this matter wouldbe unfavourable to the REIT, the REIT Manager would recommend, to the REIT Trustee, the conversion of the property-holding investee companies of the REIT into amoretax-efficientvehicle.
Distribution/Dividend RiskAlthoughREITsarerequiredtomakeannualdividendsordistributions of their net investment income, the amount ofcashavailable fordistributionbyaREITwillfluctuatebased on the performance of the REIT’s projects, which
may result in the REIT not being able to maintain or grow dividend levels in the future.
The Distribution Policy requires that the REIT Manager distributeanyrealizedcapitalgainsoftheschemeorinvestany capital gains in new assets or development projects withintwoyearsofthegainrealization.
Dilution RiskThe number of units the REIT is authorized to issue isunlimited. The REIT Manager may issue additional REIT Unitsfromtimetotime.AnyREITissuanceUnits,includingUnits issued in consideration for properties acquired by the REIT, may have a dilution effect on existing unit holders.
The REIT Manager will ensure that any future issues of Units by FRED - COMMERCIALwill not to the extentpossible, lead to an adverse effect on existing unit holders beyonddilution. Further, theTrustDeed provides that alladditional issues will be subject to the approval of the Securities Holders in general meeting. The Regulations only allow this to be overriden where any issue is exchanged for realestateassets(whichmustnotexceed20%)andtofundcost overruns.
Growth RiskThe REIT may need to obtain financing in order tomakeacquisitions or new investments. The REIT may experience difficulties inobtainingfinancing for itsprojects thus slowgrowth.Additionally,aREITmayfacechallengesinacquiringnew properties on acceptable terms due to competition.
FRED-COMMERCIAL’sdistributionpolicypermitsforthereinvestmentofincomesubjecttounit-holdersapproval.TheREITManagerwillcarefullyevaluatethetrust’sfinancingneeds, and taking in to account financing alternatives(including reinvestment of incomes) and finance marketconditions, make recommendations to unit holders on the best financing alternatives to deploy. The Promoter‘sreputation and network in the real estate industry should ensure that a healthy deal pipeline is always available.
Reputation RiskThis is the risk that loss of businessand/orpublicconfidencewill arise as a result of ethical misdemeanours by the REIT’s management or staff, failure to meet regulatory standards or other reputational damage. The REIT will mitigate reputation risk by instituting robust regulatory compliance procedures as well as oversight on the REIT’s activities.
The REIT Manager will mitigate reputation risk by instituting robust regulatory compliance procedures as well asoversightonFRED-COMMERCIAL’sactivities.
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Expense Total (KES)* Party Responsiblefor Payment
LeadTransactionAdvisorcosts 30,000,000 FRED–CommercialLegal costs 6,000,000 FRED–CommercialReportingAccountantscosts 700,000 FRED–CommercialSellingcommission** 35,000,000 FRED–CommercialCMAapprovalfees 7,500,000 FRED–CommercialNSE admission fees 1,250,000 FRED–CommercialPublic Relations costs 2,000,000 FRED–CommercialAdvertisingcostsincludingadvertisingfirm’sfee* 8,000,000 FRED–CommercialPrinting costs 3,000,000 FRED–CommercialRegistrar fees 1,000,000 FRED–CommercialOther consultants fees 3,000,000 FRED–CommercialProcessing centre costs 2,000,000 FRED–CommercialTotal 99,450,000 FRED – Commercial
28 Fees, Costs and Expenses
28.1 Fees, Costs and Expenses in Relation to the Issue or Offer of the REIT Securities
ThecostsoftheOfferareanalyzedasfollows:
Table 1: Expenses of the Offer
*ThesefiguresareinclusiveofVAT(whereapplicable)andmaybesubjecttochange.** Selling Commission of 1.5% is payable to members of the NSE (subject to a minimum of KES 100) and 1% for non-NSE selling agents.
TheexpensesoftheOfferamountto4.32%oftheOfferamountorKES0.99perUnit.
28.2 Fees, Costs and Expenses Payable by the TrusteeThere will be running expenses and other costs associated withFRED-COMMERCIALgoingforwardasoutlinedbelow:
(a) DevelopmentfeepayabletothePromoterbeing2.00% of the value of the Properties on completion and sale of the development, at the point of sale; (b) AnnualAssetmanagementfee,payabletoFusion Investment Management Limited as the REIT Manager being2.00%oftheNetAssetValueofFRED- COMMERCIAL;and (c) AnnualTrusteefeesof0.5%oftheNetAssetValue ManagementofFRED-COMMERCIAlasdefined in the Trust Deed.
28.3 Statement of the Estimated MER of the REITThisisnotapplicabletoFRED-COMMERCIAL
28.4 Limits imposed by the Regulations on the charging of fees or reimbursement of expensesThe Trustee and the REIT Manager have the power to deduct fees in accordance with the Regulations. Provisions on the remuneration of the Trustee, REIT Manager and other parties to the REIT are set out in Part XV of theRegulations. In particular, you should note that:
(a) Theoverheadsandcostsofservicesexpectedtobe provided by a REIT Manager in its capacity as REIT managershallnotbechargedtotheFund; (b) IfaREITManagerchoosestodeferitsfeespayable, no interest shall be payable in respect of any deferred payment.
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29 Distribution Policy and Factors Determining Distribution
29.1 Distribution Policy per the Trust DeedThis is set out in Clause 23.1 of the Trust Deed. The main particulars on this are as follows:
(a) FRED-COMMERCIALshallmakethedistributionsof income upon the recommendations of the REIT Managerand in accordance with the Scheme Documents.InmakingdistributionssFRED- COMMERCIALshalltakeintoconsideration the following:
(i) Incomefortheperiod; (ii) Totalreturnsfortheperiod; (iii) Liabilitiesandfinancialobligations; (iv) Cashflowavailablefordistribution; (v) Needtopreserveandmaintaintheconditionof the assets of the fund and to provide for asset replacement; (vi) Stabilityandsustainabilityofdistributionof income; (vii) InvestmentobjectiveoftheD-REIT; (viii) DistributionpolicyoftheD-REIT;and (ix) Requirementsoftheschemedocuments.
29.2 Distribution of Realized Capital GainsTheRegulationsdonotrequireFRED-COMMERCIAL,aD-REITSchemeundertheregulations,tomakeannualdistributions to the REIT Unit Holders. However, the REIT Manager may recommend to the Trustee and the Trustee maydistributeanyrealizedcapitalgainstotheREITUnitHoldersifandwhenthecapitalgainsarerealized.
The Promoter understands from the initial REIT Manager that the REIT Manager intends to recommend for distribution about 30% of any realised capital gains atthe end of each project subject to the then current cash requirement of the Scheme.
29.3 Retention of Realized Capital GainsThe REIT Manager may retain any realized capitalgains and invest in new income producing real estate, developments or buy to rent housing provided that:
(a) TheREITManagerhasreceivedapprovalfromthe REIT Unit Holders to retain the capital gains by way of ordinary resolution; and (b) Anyretainedcapitalgainswillbereinvestedwithintwo yearsofthedateoftheirrealization.
Should the REIT Manager fail to reinvest any realizedcapital gains within two years, the REIT Manager will be required to distribute the capital gains to the REIT Unit Holders within two months of the second anniversary of therealizationofthegains.
29.4 Powers and Obligations of the REIT Manager and the Trustee with respect to DistributionsThese, in summary, are as follows:
(a) TheTrusteeshallmakethedistributionsofincome upon the recommendation of the REIT manager;
(b) TheTrusteemaywherethedistributionisproposed other than on an annual basis based on audited financialaccountsrequireanaudittobeundertaken; (c) Wherethetrusteeisoftheopinionthatthelevel of distribution recommended by the REIT manager is not in the interests of REIT Securities Holders, the Trustee shall call a meeting of REIT Securities Holders to approve, by way of ordinary resolution, a lower distribution. (d) TheREIT Manager may propose and make distributions in excess of the current income where the REIT Manager, uponconsultationwiththeTrustee,certifies,on reasonablegroundsthat- (i) Immediatelyafterthemakingofsuchdistribution FRED-COMMERCIALshallbeabletopayfrom the assets of the fund, the liabilities incurred on behalf ofFRED-COMMERCIALasandwhentheyfall due and the projected liabilities for at least the next year; and (ii) Thepaymentshallnotadverselyaffectthecapacity tomaintainandpreservetheassetsofFRED- COMMERCIAL. (e) IftheREITManagerproposespaymentofdistributions in excess of the current income, they shall: (i) DisclosetotheTrusteethebasisofthecalculation of the distribution proposed; (ii) Reportsuchproposalaspartofthecontinuing disclosure requirements under the applicable regulations. (f) Concerningcapitalgains,theREITManagermay recommend to the Trustee and the Trustee may distributeanyrealizedcapitalgains; (g) TheREITManager,withtheapprovaloftheREIT Unit Holders, may retain capital gains and invest in new acquisitions or development and construction or buy to rent housing income producing real estate. However,ifanyrealizedcapitalgainshavenotbeen invested within a period of two years from the dateofrealization,thisshallbedistributedtoREIT Securities Holders within two months of the second yearofsuchrealization; (h) REITSecuritiesHoldersbywayofordinaryresolution may approve a lower distribution than what the REIT Manager has recommended.
29.5 Implications of failure to make distributions as per the Regulations
Where theTrusteefails tomake thedistributionasper theRegulations-
(a) TheD-REITmayceasetobeclassifiedasarealestate investment trust scheme for taxation purposes; (b) SubjecttotheSchemeDocuments,theREITSecurities Holders may institute a cause of action against the Trustee or the REIT manager; and (c) TheAuthoritymayrevoketheauthorizationissuedto the REIT under the Regulations.
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30 Taxation, Discretion as Regards Distributions & Implications for Taxation Treatment of the REIT and Distributions
This section does not purport to be a complete analysis of all tax considerations relating to the Offer Units and so should be treated with appropriate caution. Prospective investors should consult their own professional advisors concerning the possible tax consequences of purchasing, holding and/or selling Units and receiving payments of dividends and/or other amounts in respect of the Offer Units under the applicable laws of their country of citizenship, residenceor domicile.
30.1 Taxation treatment of the REITSection20oftheIncomeTaxActexemptstheincomeofa REIT from payment of income tax. It states as follows:
“(1)Subjecttosuchconditionsasmaybespecifiedbythe Minister under section 130
(a) Aunittrust;or (b) Acollectiveinvestmentschemesetupbyan employer for purposes of receiving monthly contributions from taxed emoluments of his employees and investing them primarily in shares traded on any securities exchange operating in Kenya; (c) Arealestateinvestmenttrust,registeredbythe Commissioner, shall be exempt from income tax except for the payment of withholding tax on interest income and dividends as a resident person asspecifiedintheThirdScheduletotheextentthat its unit holders or shareholders are not exempt personsundertheFirstSchedule.
(2) Alldistributionsofincome,andallpaymentsfor redemption of units of sale of shares received by unit holders or shareholders shall be deemed to have been alreadytaxpaid.”
30.2 Tax on Distributions to InvestorsWithholdingtaxattherateof5%willbedeductedbyFRED-COMMERCIALfromdividendpaymentsmadetoKenya
residentunitholdersofFRED-COMMERCIALaswellascitizensoftheEastAfricanCommunityPartnerStatesandat10%fornon-residentshareholdersintermsofprevailinglegislationassetoutintheKenyaIncomeTaxAct(whichis subject to revision through changes in Government policy).Non-residentsmay be entitled to a tax credit intheir country of residence, either under domestic law or underthetaxtreatiesreferredtobelow.IfanApplicantistax exempt, the person or company or institution will be requiredtoprovideacertifiedcopyoftheTaxExemptionCertificate.
30.3 Stamp DutySo long as the Offer Units are listed on a securities exchange, and for as long as there is no change in law in this regard, no stamp, registration or similar duties or taxes (includingcapitalgains tax)willbepayable inKenya inconnection with the transfer of such Units in accordance with current legislation.
30.4 Tax TreatiesKenya has entered into double taxation treaties with Canada, Denmark, Germany, India, Mauritius, Norway, Sweden, the United Kingdom and Zambia. Treaties with Italy,UgandaandTanzaniahavebeensignedbutarenotyet in force.
30.5 Expert opinions on tax treatmentNone has been obtained by the Trustee
30.6 Circumstances in which Taxation Treatment may Vary The above tax treatment for the REIT may vary if:
(a) TheREITfailstoregisterwiththeCommissionerof Income Tax; or (b) Foranyreason,FRED-COMMERCIALceasesto be a REIT; or (c) Ifthereisachangeintherelevanttaxlegislation.
The comments below are of a general nature based on taxation law and practice in Kenya as at the date of this Offering Memorandum and are subject to any changes thereafter.Theyrelateonlytothepositionofpersonswhoaretheabsolutebeneficialowners of the Offer Units.
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31.1 Restriction on the transferability of the REIT Securities
TheOfferUnitswillbetransferabletoProfessionalInvestorsinaccordancewiththeprovisionsrelevanttoD-REITsundertheRegulations and the NSE Trading Rules.
31.2 Listing of the REIT Securities
TheUnitsinFRED-COMMERCIALwillbelistedonarestrictedmarketsegmentoftheNSEonwhichonlyprofessionalinvestorswill be permitted to trade.
NB:INVESTORSWILLNOTBEENTITLEDTOSEEKREDEMPTIONOFTHEIRUNITS.
31 Transferability of REIT Securities, Listing and Redemption
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OtherthanhavingagoodprojectandequityIRR,optionCalsohasabetterdebtservicecoverageratio(DSCR).
Financial Viability Options Summary
Project IRR Equity IRR Owner Payback Period (Years)
OptionA 22.7% 17.6% 3 yearsOption B 16.9% 15.1% 9 yearsOption C 16.7% 15.6% 7 years
In conclusion, it was considered that this would be a viable project that would set the pace for premium mixed use developments in Meru County.
The report recommended that Greenwood City is developed
basedonOptionAwithslightmodifications:outrightsaleoftheresidential component with rental and income stabilization ofofficeandretailspaceintheshorttermpriortosaleleadingtoaprojected IRR of 20.28 per unit.
32 Expert Opinions
32.1 Summary of SPV Valuer’s Report
Special Purpose Vehicle Valuation Methodology Fair Value
Meru Greenwood Park Limited NAV 868,858,099Total Fair Value 868,858,099
32.2 Summary of Pre-Feasibility Report
Axis Real Estate Limited (Axis RE)was invited byMeruGreenwoodParkLimitedinMarch2015,tocarryoutamarketand pre-feasibility study on L.R. NO. Meru MunicipalityBlock 1/3 inMeruCounty,Kenya.A preliminary study isundertaken to determine if it would be worthwhile to proceed tothefeasibilitystudystagewhichisinformedbythefinalproject concept.
For this proposed project,Axis RE initially undertook anoption analysis to consider offering high-end residentialapartments, hotel, retail and office development. Afterundertakingthemarketstudy,theresearchfindingsledtotherecommendation that the proposed project comprises of an urbanmixed-usedevelopment.Theideawastolookbeyondthe borders of Meru County and undertake a project that will have both national and international recognition, without compromising on the returns of the investors. To this end the proposed development should include:
(a) Aretail,entertainmentandlifestylefacility,measuring notmorethan25,000sqmthatwouldbethecentreof attraction in Meru County for many years to come; (b) Amodernhighgradeofficeblock,measuringnotmore than 20,000 sqm which would accommodate high grade corporate tenants; (c) High-endluxuriousapartmentscomprising70%oftwo bedroomunitsand30%ofthreebedroomunits,which thebuyers(investors)mayuseashotelapartments all under the management of a reputable operator.
The units will be serviced and furnished, and will enjoy premium hospitality services from the operator.
The project as proposed by the report would cost circa Kshs 3.5 billion excluding the cost of construction finance, andsubjecttofirmedupdesignsandbillofquantities.Intermsoftheoptimalexitstrategy,thefinancialviabilityconsideredthe following options;
(a) OptionA-Outrightsaleoftheretail,officeand residential components; (b) OptionB-Rentalofbothretailandofficecomponents, and the outright sale of the residential component; (c) OptionC-Rentaloftheretailcomponentonly,andthe outrightsaleofbothofficeandresidentialcomponents.
Thetablebelowgaveasummaryofthefinancialviabilityofthe proposed project with different exit options considered. It should be noted that the outright sale of the project was determined to be the best option. However given the fact that it may complicate management under multi-tenancy,a suitable single buyer should be considered for the retail component. Since this might take a lot of time and the probable buyer may require that the retail mall is fully let first,it’sadvisablethatoptionCbeconsideredattheonset.This is where the retail component is rented out and the other components are sold.
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33 Meetings, Reports, Accounts and REIT Securities Holders’ Rights
Please take note of the following:
33.1 Requirement for meetings and the rights of REIT Securities Holders to require the calling of meetings;
The provisions relevant to the calling of meetings are summarizedinSection17ofthisOfferingMemorandum.
33.2 Notices and Voting
General meetings for securities holder require at least 21 days’notice.TheAuthorityshallreceiveatleast7dayspriornotificationoftheintendedproposaltoseekREITsecuritiesholders’ approval prior to the circulation of any notice.
The vote required to pass ordinary resolutions is a simple majority being 50% plus one vote. The voting level forspecial resolutions is a majority of not less than three-fourths of such unit holders who, being entitled so to do, vote in person or by proxy at a general meeting of which at least 21 days’ written notice specifying the intention to propose the special resolution has been given.
33.3 Matters which require a Special Resolution
(a) AppointmentofanewTrusteeonresignationofthe immediate former trustee; (b) TheremovalandreplacementoftheTrusteeunlessan order of the Court has been issued for the same; (c) Theapprovalofspecialcircumstancesunderwhichthe REITManagermay,withtheapprovaloftheCMA, remove a Trustee without need to revert to the Securities Holders; (d) Ifaninvestmentinrealestatehasnotbeencompleted within 180 days of the close of the initial offer, a special resolution will be required to determine whether: (i) Theperiodforregistrationshouldbeextended and the period of extension; (ii) Allmoniespaidintothefundtogetherwithany interest or earnings should be refunded within fourteen days of the date of the meeting; and (iii)Whatotheractionshouldbetakenbythetrustee or REIT manager. (e) WindingupoftheREIT; (f) TheconversionoftheD-REITintoanI-REIT;and (g) ThealterationofSchemeDocuments.
33.4 Matters which must be put to a vote of REIT Securities Holders
(a) TheimpositionofanobligationtoSecuritiesHoldersto provide additional funds necessary to enable the Trustee to pay any costs and expenses necessary in connection withtheREITAssets; (b) AppointmentofanewTrusteeonresignationofthe immediate former trustee; (c) TheremovalandreplacementoftheTrusteeunlessan order of the Court has been issued for the same; (d) Theapprovalofspecialcircumstancesunderwhichthe REITManagermay,withtheapprovaloftheCMA, remove a Trustee without need to revert to the Securities Holders; (e) Theacquisitionofrealestateatapricewhichexceeds thepriceinthevaluationreportbymorethan10%; (f) Thedisposalofrealestateatapricelowerthan90%of the value assessed in the valuation report; (g) Theentry,bytheTrusteeintoacontractforthedisposal ofanassetwheresuchdisposalexceeds50%ofthe total asset value of the REIT; (h) Ifaninvestmentinrealestatehasnotbeencompleted within 180 days of the close of the initial offer, a special resolution will be required to determine whether: (i) Theperiodforregistrationshouldbeextended and the period of extension; or (ii) Allmoniespaidintothefundtogetherwithany interest or earnings should be refunded within fourteen days of the date of the meeting; and (iii)Whatotheractionshouldbetakenbythetrustee or REIT manager. (i) BorrowingortheentrybytheTrusteeintoafinancing arrangementofamountsgreaterthan60%butnot morethan75%ofthetotalassetvalue,foratemporary purpose for a term not exceeding six months; (j) Theapprovalofalowerdistributionthanthatproposed by the REIT Manager; (k) TheconversionoftheD-REITintoanI-REIT; (l) Thealterationofschemedocuments; (m) Theapprovalofanyproposedmaterialincreaseinfees or change in the method of calculating the fees charged by the REIT Manager, if the same is not deemed fair and reasonable by the Trustee; (n) Appointmentandre-appointmentoftheREITManager by the Securities Holders;
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(o) RemovaloftheAuditor(Trusteemayactonits owninstancetoo); (p) WindingupoftheREIT; (q) Additionalacquisitionsordisposalsif:
(i) Theproposedacquisitionordisposalisfrom/toa person who is not the promoter or connected person and the total consideration represents more than15%ofthelatestpublishednetassetvalue; (ii) Theproposedacquisitionordisposalisfrom/tothe promoter or a connected person and the total considerationrepresentsmorethan5%ofthe latest published net asset value; (r) RemovaloftheValuer; (s) Connectedpartytransactionswherethesupplyofgoods or services is not subjected to an open bidding process and the value of the contract when aggregated with all other transactions conducted with connected persons relating to the provision of goods and services in the immediately preceding twelve months exceeds or wouldexceed15%oftheamountspentonconnected party provided goods and services; and (t) ApprovaloftheissueofadditionalREITSecuritiesto persons other than existing securities holders or in a manner other than on pro rata basis to existing holders; (u) RetentionofRealizedCapitalGainsforthepurposeof reinvesting in new assets or developments.
33.5 REIT Securities Holder’s right to receive Reports and Financial Statements
The rights of REIT Securities Holders are set out in the Trust Deed and are summarized in Section 17.1.6 and17.1.7 of this Offering Memorandum.
33.6 Statement on the key rights of REIT Securities Holders
The REIT Units shall be personal property and shall confer upon the holders thereof the interest attached thereto including the enjoyment of distributions if and when these are made. The REIT Units will be freely transferable subject to the requirements of the restricted market segment on which they are listed.
NB: The rights of REIT Securities Holder will be limited to their interest in the assets of the REIT as represented by the REIT Units held. No Securities Holder has or shall be deemed to have any right of ownership in any of the REIT Assets.
REIT Securities Holders are also entitled to receive notice of, attend and vote at general meetings of Securities Holders of the REIT.
The rights of REIT Securities Holder will be limited to their interest in the assets of the REIT as represented by the REIT Units held. No Securities Holder has or shall be deemed to have anyrightofownershipinanyoftheREITAssets.
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34 Additional Information
34.1 Material Contracts
The main contracts to which the Promoter or the Trustee is a party on behalf of the REIT include the following:
(a) TrustDeed; (b) ManagementContractwithREITManager; (c) ContractwithLeadTransactionAdvisor; (d) ContractwithLegalAdvisor; (e) ContractwithReportingAccountant; (f) ContractwithPropertyValuer; (g) ContractwithProjectManagerCertifier; (h) ContractwithStructuralEngineer;and (i) Agreementforpurchaseof100%oftheissued shares in Meru Greenwood Park Limited.
FRED-COMMERCIALwasapprovedbytheCMAonFebruary29,2016andwasissuedwithaCertificateofRegistrationNumber4/2016.
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35 Consents
The following persons have given their consent to being named in the Offering Memorandum in the form and context in which their names appear and have not subsequently withdrawn their consent:
i. FusionCapitalLimited, The Promoterii. TheCo-OperativeBankofKenyaLimited,The REIT Trusteeiii. FusionInvestmentManagementLimited,The REIT Manager iv. NIC Capital Limited, The Lead Transaction Advisorv. MboyaWangong’u&Waiyaki,The Legal Advisorsvi. Deloitte Consulting Limited, The Reporting Accountantvii. Ngotho Property Consultants Limited, The Property Valuerviii. Burbidge Capital Limited, The SPV Valuerix. CitiscapeValuers&EstateAgentsLimited,The Property Managerx. Multiscope Consulting Engineers, The Structural Engineerxi. Beeque Consultants Limited, The Project Manager Certifierxii.AxisRealEstateLimited,The Pre-Feasibilty Consultantxiii. Deloitte Consulting Limited, The Tax Consultantxiv.KnightFrankValuersLimited,The Project Valuation Update Consultantxv. Howard Humphreys Limited, The Project Status Update Consultant
Their written consents are availableintheDocumentsAvailableforInspection.
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36 Documents Available for Inspection
Copies of the following documents will be available for inspection at the offices of the Promoter,Trustee andREITManager.
The REIT Manager will also run a virtual data room with copies of all the below documents for the duration of the Offer.
(a) TrustDeedestablishingtheREIT;(b) Signedcopiesofconsents,datednotmorethan thirty days prior to the date of publication of this Offering Memorandum of: (i) Promoter (ii) Trustee (iii) REITManager (iv) LeadTransactionAdvisor (v) LegalAdvisor (vi) ReportingAccountant (vii) PropertyValuer’s (viii) SPVValuer (ix) StructuralEngineer (x) ProjectManagerCertifier’s (xi) Pre-feasibilityConsultant
(c) ConsultantProfilesforeachofthefollowingparties: (i) Promoter (ii) Trustee (iii) REITManager (iv) LeadTransactionAdvisor (v) LegalAdvisor (vi) ReportingAccountant (vii) PropertyValuer (viii) StructuralEngineer (ix) ProjectManagerCertifier
(d) LegalOpinion;(e) REITValuationReportbytheLeadTransactionAdvisor;(f) MarketandPre-FeasibilityStudyforaProposed Development on L.R. No. Meru Municipality Block 1/3 – Meru County, Kenya;(g) MeruGreenwoodParkLimitedValuationReport;(h) PropertyValuationReportonL.R.No.Meru Municipality Block 1/3;(i) Lock-inAgreementsbetweentheREIT andtheAssetTransferors;(j) SharePurchaseAgreementbetweenFRED-Commercial and the Share Transferors;(k) AuditedFinancialStatementsfortheperiodending31st December2015ofTrustee;(l) AuditedFinancialStatementsfortheperiodending 31stDecember2015ofREITManager;(m) AuditedFinancialStatementsfortheperiodending 31st December 2014 of the Property Manager;(n) CopyoftitleforL.R.No.MeruMunicipalityBlock1/3(o) ReportingAccountant’sReport;(p) CertificationfromtheProjectManagerCertifieronthe Construction Cost Budget;(q) ReportoftheStructuralEngineer(Within180days ofthecloseoftheOffer);(r) ReportoftheProjectManagerCertifier(Within 180daysofthecloseoftheOffer);(s) BillofQuantitiesbyProjectManagerCertifier (Within180daysofthecloseoftheOffer);(t) MaterialContracts;(u) GreenwoodCityProjectStatusUpdate-May2016 valuation report;(v) GreenwoodCityProjectStatusUpdate-May2016 project status report.
ForaperiodofnotlessthanthreeyearsfromthedateoftheapprovaloftheOfferingMemorandum by the Authority, copies of the documents listed below shall beavailableforinspectionattheregisteredofficeoftheTrusteeorsuchotheraddressastheAuthoritymayapproveandsubsequentlyshallbemadeavailablebytheTrusteefor inspection for a period of eight years from the date of approval of the Offering Memorandum on the giving of fourteen days’ notice in writing to the Trustee.
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37 Application for REIT Securities & Application Form
37.1 Acceptance and Application Procedures
(a) CopiesofthisOfferingMemorandum,withthe accompanyingApplicationFormasappearsinsection 39.4 of the Offering Memorandum, may be obtained fromtheAuthorizedSellingAgentsreferredtoin Section 38 of this Offering Memorandum or from FusionCapitalofficesorfromtheTrustee; (b) PersonswishingtoapplyforUnitsintheREITmust completetheappropriateApplicationFormand,every ApplicantisrequiredtohaveaCDSaccount.The ApplicationFormmustbecompletedinaccordancewith the provisions contained in this Offering Memorandum andtheinstructionssetoutontheApplicationFormand returnedtooneoftheAuthorisedSellingAgentslisted in Section 38 of this Offering Memorandum. In the event of a rejection, for any of the reasons set out in the“RejectionsPolicy”below,anysuchApplication FormsshallbereturnedtotheAuthorisedSelling AgenttowhichtheApplicationFormwassubmitted forcollectionbytherelevantApplicant.Thereturn or refund of any payment received in respect of any rejectedApplicationwillbeeffectedbywayof ElectronicFundsTransfer(EFT)providedthatEFT details have been provided and are accurate; (c) Saveinthecaseofnegligenceorwillfuldefaultonthe partoftheREIT,itsAdvisorsoranyoftheAuthorised SellingAgents,neitherthePromoter,noranyofthe AdvisorsnoranyoftheAuthorisedSellingAgentsshall beunderanyliabilitywhatsoevershouldanApplication Formnotbereceivedbytheofferclosingdateas indicated in section 8.4 of this Offering Memorandum. (d) Jointapplicationsmayonlybemadebyindividuals(not corporations)andinallcasesJointApplicantssubmitting anapplicationmustfallwithinthesameAllocation category. Joint applications must not be used to defeat theAllocationPolicy.Forpurposesoftheminimum initialallocationundertheAllocationPolicy,the Promoter reserves the right to consider each Joint ApplicationasanApplicationbyeachJointApplicant alone, namely two separate applications, jointly for the number of Units applied for; (e) Receiptoffundstransferredshallnotamounttothe acceptanceofanyApplication; (f) AllalterationstotheApplicationForm,otherthanthe deletion of alternatives, must be authenticated by the full signature of the applicant; (g) Applicationssentbyfacsimileorbyanymeansother than the methods stipulated in this Offering Memorandum will not be accepted; (h) Applicationsoncegivenareirrevocableandmaynotbe withdrawn once submitted; (i) BysigninganApplicationForm,eachApplicant: (i) Agreesthathavinghadtheopportunitytoreadthis Offering Memorandum, it/he shall be deemed to have had notice of all information and representations concerning the REIT contained herein;
(ii) ConfirmsthatinmakingsuchApplicationitis not relying on any information or representation in relation to the REIT other than those contained in this Offering Memorandum and accordingly agrees that no person responsible solely or jointly for this Offering Memorandum or any part thereof shall have any liability for any other information or representation; (iii)Acceptstoreceiveanycommunicationfromthe Trustee, including notices for meetings, through electronic means including but not limited to email or placement of such notices on the REIT’s website,aswellasnotificationthroughthemass media; (iv)Representsandwarrantsthat,exceptincases wheretheApplicantislicensedtoapplyforand holdUnitsforotherpersons,theApplicantapplies for the Units on his/its own account, will be the beneficialowneroftheUnits,hasnotrepresented himself/itself as a different person in any other application nor applied for Units under a different name, and is not applying for the Units on the instructions of or on behalf of any other person and has not instructed any other person to apply for Units as his nominee; (v) AcknowledgesthatthePromoterand/ortheLead TransactionAdvisorsreservetherighttorejectany Applicationfoundtobeincontraventionof subparagraph(iv)above. (j) ApplicantswillreceiveUnitsindematerialisedform bywayoftheirCDSAccountsbeingcreditedwiththe number of Units allocated and issued to them.
BysigninganApplicationForm,anApplicantagreestotheallotment and issue of such number of Units (not exceeding the number applied for) as shall be allotted and issued totheApplicantuponthetermsandconditionsoftheOfferingMemorandum and subject to the REIT Trust Deed, and agrees that theTrusteemay enter theApplicant’s name inthe Register of Securities Holders of the REIT as holder of such Units.
37.2 Opening and Closing Date of the OfferThe Offer will open at 9:00 a.m. on Thursday, 23rd June 2016 andcloseat3:00p.m.onFriday,15th July 2016.
37.3 Application Money
(a) AprospectiveinvestorwishingtoapplyfortheUnits must duly complete and sign the accompanying ApplicationFormandreturnthesameinitsentirety sothatitisreceivedbyanAuthorisedSellingAgent by the Closing Date, together with either bankers cheques,RTGSslipordepositslip.Forprospective investors applying for Units who wish to make payment after the allotment of Units, payment must be secured by an irrevocable on demand bank guarantee from a licensed commercial bank, for the value of the
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Units applied for, which bank guarantee must be valid untilandexpirenoearlierthanFriday,22nd July 2016. QualifiedinstitutionalinvestorsapplyingforUnitswho wish to make payment fter the allotment of Units may also make payment by a letter of undertaking in the formatsetoutinsection39.5forthevalueoftheUnits applied for, which bank guarantee must be valid until andexpirenoearlierthanFriday,22nd July 2016; (b) PaymentfortheUnitsallottedwillbemadeasperthe section titled 8.4 following the Promoter notifying the ApplicantofitsproposedallocationofUnits.Ifsuch payment is not made, then the Promoter shall reserve the right to call in the Bank Guarantee. Units shall only beissuedtoApplicantsafterpaymentinfullforthe Units (in cleared funds net of any bank transfer charges andinclusiveofanyCDSexpenses)hasbeenreceived by the REIT; (c) InaccordancewiththeCentralDepository(Regulation ofCentralDepositories)Regulations,2004,thecostof postage of the statement issued on each CDS account upon issue of the Units will be borne by the respective ApplicantattherateofKES30.00perstatement(‘CDS expenses’).Thiscostshouldbeincludedinpaymentfor the Units is made; (d) PaymentforUnitsmustbeeffectedbyRTGStothe ReceivingBankprovidedthattheApplicantcompletes therelevantsectionoftheApplicationForm,EFT and RTGS payments should be made to Account Name: Fusion D-REIT Offer; Bank: NIC Bank; Branch: NIC House, Masaba Road; Account No: 1003535588; SWIFT Code: NINCKENA Reference: Application Form Number [XX]; (e) TheAuthorisedSellingAgentsandtheReceivingBank areentitledtoaskforsufficientidentificationtoverify thattheperson(s)makingtheApplicationhasauthority orcapacitytodulycompleteandsigntheApplication Form.TheAuthorisedSellingAgentsaretherefore expectedtoundertakeall“KnowyourClient” procedures and activities on nominee accounts as requiredbylaw.TheLeadTransactionAdvisorand the REIT Trustee have the right to demand and be provided with the details of the nominee accounts heldbytheAuthorisedSellingAgentstoascertainthe eligibilityofanyApplicationbynominees.Indefault, the REIT Trustee may at its sole discretion treat such applications as invalid; (f) EveryApplicantisrequiredtoticktheappropriatebox ontheApplicationFormasregardshis/herresidency andorcitizenship/otherstatus,whereapplicable. (g) Nointerestwillbepaidonmoniesreceivedinrespect of applications for Units, nor will interest be paid on any amounts refunded or deposited at the time ofApplication; (h) Commissionatthespecifiedrateof1.5%oftheOffer priceoftheUnitsallocatedperApplicationwillbepaid toAuthorisedSellingAgentsthataremembersof the NSE on all allocations made in respect of ApplicationFormsreceivedfortheUnitsandwhich bearthestampoftheAuthorisedSellingAgent.No commissionwillbepaidonApplicationFormswhich bearmorethanoneornoAuthorisedAgent’sstamp orwhicharerejected.Commissionof1.0%oftheOffer
PriceofUnitsallocatedwillbepaidtoanyAuthorised SellingAgentwhichisnotamemberoftheNSE;
(i) AlltransactionsrelatingtotheOffershallbe transacted in Kenya Shillings.
37.4 Rejections Policy (a) TheAuthorisedSellingAgentswillpresenttothe ReceivingBankthroughtheRegistrarallAuthorised Payments received on behalf of the REIT Scheme. DeliveryofanApplicationFormaccompaniedwith evidence of RTGS remittance or deposit slip or, inthecaseofQualifiedInstitutionalInvestors,a LetterofUndertakingintheformsetoutinsection39.5 to the Registrar will constitute a warranty that the paymentwillbehonouredonfirstdemand; (b) ThePromoterandtheTrusteeshallnotbeunderany liabilitywhatsoevershouldanyApplicationFormfail tobereceivedbytheRegistrarorbyanyAuthorised SellingAgentbytheClosingDate.Inthisregard, suchApplicationFormsandaccompanyingcheques shallbereturnedtotheAuthorisedSellingAgentwhere theApplicationFormwassubmitted,forcollectionby theapplicableApplicants; (c) Applicationsshallberejectediffullvalueisnot received; and (d) Applicationsmayalsoberejectedforthefollowing reasons:
i. IncorrectCDSAccountNumber; ii. Missing or illegible name of primary or joint applicantinanyApplicationForm; iii. Missingorillegibleidentificationnumber,including corporation registration number, or in the case of Kenyanresidents(otherthancitizens),missingor illegible alien registration number; iv. Missing or illegible address (either postal or streetaddress); v. Missingresidenceandcitizenshipindicatorsfor primaryApplicantinthecaseofanindividual or missing residency for tax purposes for corporate investors; vi. MissingorincompleteCDS5Forminthecaseof financedapplicationswheretheUnitsaretobe taken as collateral; vii. Insufficientdocumentationforwarded,including missingtaxexemptioncertificatecopiesfor Applicantsthatclaimtobetaxexempt; viii. In the case of nominee applications, incomplete information, failure to satisfy the Issuer of nominee status or lack of declaration from the agent submittingtheApplication; ix. MissingorinappropriatelysignedApplication Formincluding:
• PrimarysignaturemissingfromSignatureBox1; • JointsignaturemissingfromSignatureBox2 (ifapplicable); • Twodirectorsoradirectorandtherespectivecompany secretary having not signed or seal having not been affixedinthecaseofacorporateapplication;
104
x. AmountaspaymentfornumberofUnitsappliedfor is less than the correct calculated amount; xi. Bankers’ cheque has unauthenticated alterations; or xii. Such other reason as the Issuer may provide to the Applicantuponrejectionofanapplication.
37.5 Refund PolicyApplicant/smonieswillberefundedthroughEFTandwillapply as follows:
(a) RefundswillonlyapplywherefundsfortheApplication are not pledged through guarantees or letters of undertakingonbehalfoftheApplicant; (b) Nointerestwillbepaidonanyapplicationmonies received in respect of applications for Units, nor will interest be paid on amounts refunded to the Applicant.Interest,ifany,earnedonapplicationmonies ispayabletotheCMAInvestorCompensationFund inaccordancewithCMAregulations.Refundsinrespect ofunsuccessfulApplications(ifany)shallbemadeby theREITintheformofEFT; (c) EFTswillonlybecreditedtoaccountsheldat commercialbanks.InthecaseofApplicantswhose Units are pledged, refund money/monies in the name of theApplicantwillbedeliveredtothefinancierindicated ontheApplicationForm.
Refunds to Foreign Investors and East African investorsoutside Kenya will be effected through EFT in KenyaShillings(netoftransactioncharges)totheApplicant’sbankaccount provided on theApplicationForm.Any exchangeratedifferenceswillbefortheaccountoftheApplicant.
37.6 Allocation Policy
(a) FRED-COMMERCIALwillallocatetheUnitsonafirst- comefirstservedbasisbutreservestherighttoachieve a balanced distribution of the Units between institutions, companies and individual members of the public; (b) FRED-COMMERCIALwillannouncethemannerin which the Offer Units have been allocated to applicants on the date set out in section 8.4 of the Offering Memorandum titled“TimetableofPrincipalEvents”forannouncementof allocation results. The announcement will be published in at least two newspapers with national circulation in Kenya.
37.7 Foreign InvestorsTheOffer toForeign Investorsmaybe affectedby lawsand regulatory requirements of the relevant jurisdictions in whichtheForeignInvestorsreside.AnyForeignInvestorswishing to apply for the Units must satisfy themselves as to the full observance of the laws of the relevant territory and governmental and other consents to ensure that all requisite formalities are adhered to, and must pay any issue, transfer or other taxes due in such territory.
Foreign Investors are advised to consult their ownprofessional advisors as to whether they require any governmental or other consents or need to observe any applicable legal, tax or regulatory requirements to enable them to apply for and purchase the Units.
37.8 How to Complete the Application PleasefindincludedinthisOM,acopyofanApplicationForm for illustrative purposes.Donote that applicationsforREIT securities can not bemade on theApplicationFormattachedtotheOfferingMemorandum.
37.9 Minimum number and value of REIT Securities that can be applied for The REIT is subject to a minimum aggregate subscription of fifty percent (50%) of the entire Offer, that is, KES1,150,000,000or50,000,000Units.
Each investor must subscribe for a minimum of 218,000 unitsthatisREITUnitsworthatleastKES.5,014,000.
37.10 Allocation of UnitsTheallocationwillbemadeonafirstcomefirstservedbasis.
The Issuer may exercise some discretion with regard to the allocations. In particular and subject always to the provisions of the Regulations, the Issuer may:
(a) DeterminethenumberofREITsecuritiestobeissued or allocated to any applicant; (b) Extendtheclosingdatefortheissueoroffer;and (c) Withdrawtheofferintheeventthataminimum subscription is not reached.
37.11 Qualification of an Investor as a Professional Investor In order to qualify as a ‘professional investor’ investors will need to qualify under one of these categories. The investor would require to be either:
(a) ApersonlicensedundertheAct; (b) anauthorizedschemeorcollectiveinvestmentscheme; (c) Abankorsubsidiaryofabank,insurancecompany,co- operative, statutory fund, pension or retirement fund; or (d) Apersonincludingacompany,partnership,association or a trustee on behalf of a trust which, either alone, or with any associates on a joint account subscribes for REITsecuritieswithanissuepriceequaltoatleastfive million shillings.
NB: The REIT Units purchased in this Offer may only be transferred to another professional investor.
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38 Authorised Selling Agents
Fusion Capital Limited (FCL) has appointed specificAuthorised SellingAgents inconnectionwiththeOffer.TheAuthorisedSellingAgentsareMembersoftheNSEthatareissuedwithannuallicensesbytheCMA.TheseAuthorisedSellingAgentsinKenyaare listed below.
Licensed Investment Banks
African Alliance Kenya Investment Bank Limited1stFloor,Trans-nationalPlazaMama Ngina StreetPOBox27639,00506NairobiTel:2762000/[email protected]
Genghis Capital LimitedPWCTower,4thFloor,WaiyakiWayChiromoRoad,WestlandsP.O.Box9959-00100,NairobiTel:2774750/1/[email protected]
Barclays Financial Services LimitedBarclaysPlazaM6Loita StreetP.O.Box30120-00100,NairobiTel: [email protected]
KCB Capital LimitedKencom HouseP.O.Box48400-00101,NairobiTel: [email protected]
CBA Capital LimitedMara and Ragati Roads, Upper HillPO Box 30120, 00100 NairobiTel: [email protected]
NIC Capital LimitedNIC House, Masaba RoadPOBox44599,00100,Nairobi.Tel: [email protected]
Dyer & Blair Investment Bank Limited10thFloor,LoitaHouse,LoitaStreetPOBox45396,00100,Nairobi.Tel: 3240000/[email protected]
Renaissance Capital (Kenya) Limited 6thFloor,PurshottamPlace,ChiromoRoadPOBox40560-00100Nairobi.Tel:3682000/[email protected]
Equity Investment Bank LimitedEquity CenterHospital Road, Upper HillPOBox74454,00200NairobiTel: 2262000
SBG Securities LimitedCFCStanbicHouse2ndFloor,CFCCentre,ChiromoRoad,PO Box 47198, 00100 Nairobi. Tel:3638900,[email protected]
Faida Investment Bank 1stFloor,WindsorHouse,UniversityWayPOBox45236,00100,Nairobi.Tel:[email protected]
Standard Investment Bank Limited16thfloor,ICEABuilding,KenyattaAvenuePO Box 13714, 00100, Nairobi. Tel: 2228963/[email protected]
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Licensed Stockbrokers
ABC Capital Limited5thFloor,IPSBuilding,KimathiStreetPO Box 34137, 00100, Nairobi. Tel:2246036/[email protected]
Kingdom Securities Limited5thFloorCo-operativeHouse,HaileSelassieAvenuePOBox48231-00100,Nairobi.Tel : 3276000 [email protected]
AIB Capital Limited9thFloor,FinanceHouse,LoitaStreetPO Box 11019, 00100, Nairobi. Tel: 2210178/[email protected]
NIC Securities LimitedNIC House, Masaba RoadPO Box 63046, 00200, Nairobi. Tel: [email protected]
ApexAfrica Capital Limited4thFloor,RehaniHouse,KoinangeStreetP.O. Box 43676, 00100, Nairobi. Tel:2242170/[email protected]
Old Mutual Securities Limited6thFloor,IPSBuilding,KimathiStreetPOBox50338,00200,Nairobi.Tel:2241350/4/[email protected]
Francis Drummond and Company Limited2ndFloor,HughesBuilding,KenyattaAvenue,POBox45465,00100,Nairobi.Tel: 318690/[email protected]
Sterling Capital Limited11thFloor,FinanceHouse,LoitaStreetP.O.Box45080,00100,Nairobi.Tel: 2213914/[email protected]
Genghis Capital LimitedPWCTower,4thFloor,WaiyakiWayChiromoRoad,WestlandsP.O.Box9959-00100,NairobiTel:2774750/1/[email protected]
Suntra Investment Bank Limited10thFloor,NationCentre,KimathiStreetPO Box 74016, 00200, Nairobi. Tel: [email protected]
Kestrel Capital (E.A) Limited5thFloor,ICEABuilding,KenyattaAvenuePOBox40005,00100,Nairobi.Tel:2251758/[email protected]
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39 Schedules/Appendices
39.1 TRUSTEE AUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDING 31ST DECEMBER 2014
39.1.1 STATEMENT OF COMPREHENSIVE INCOME
31-Dec-14 31-Dec-13 31-Dec-14 31-Dec-13 KSHS.’000 KSHS.’000 KSHS.’000 KSHS.’000 Audited Audited Audited Audited
1.0 INTEREST INCOME
1.1 Loansandadvances 24,713,355 20,045,346 24,669,606 20,044,5381.2 Governmentsecurities 4,331,262 4,126,061 4,309,901 4,107,4951.3 Depositsandplacementswithbankinginstitutions 307,394 370,318 287,900 358,8891.4 Otherinterestincome - - - -
1.5 Totalinterestincome 29,352,011 24,541,725 29,267,406 24,510,922
2.0 INTEREST EXPENSE2.1 Customerdeposits 5,957,719 5,103,060 5,957,045 5,103,0542.2 Depositsandplacementsfrombankinginstitutions 215,306 146,220 206,410 146,2202.3 Otherinterestexpense 1,903,128 666,535 1,903,128 666,535
2.4 Totalinterestexpense 8,076,154 5,915,815 8,066,583 5,915,809
3.0NETINTERESTINCOME/(LOSS) 21,275,858 18,625,910 21,200,823 18,595,113
4.0 NON-OPERATINGICOME4.1 Fesandcommissionsonloansandadvances 2,148,888 1,935,527 21,148,888 1,935,5274.2Otherfeesandcommissions 6,565,180 5,225,451 5,933,931 4,894,6384.3 Foreignexchangetradingincome/(loss) 1,417,692 1,471,977 1,201,739 1,443,6494.4 Dividendincome 5,958 53,551 258,101 53,5514.5 Otherincome 672,187 577,386 639,416 625,615
4.6 Totalnon-interestincome 10,809,905 9,263,893 10,182,074 8,952,980
5.0 TOTALOPERATINGINCOME 32,085,762 27,889,803 31,382,898 27,548,093
6.0 OTHER OPERATING EXPENSES6.1 Loanlossprovision 1,175,598 778,157 1,133,519 773,2916.2 Staffcosts 8,438,158 8,013,780 8,060,096 7,825,3526.3 Directors’emolments 161,129 131,734 116,235 110,2746.4 Rentalscharges 1,304,859 1,123,891 1,102,060 1,062,8956.5 Depreciationchargeonpropertyandequipment 1,953,657 1,528,961 1,840,599 1,514,2496.6 Armortisationcharges 342,444 178,812 304,166 176,1766.7Otheroperatingexepenses 6,722,174 5,627,393 6,311,493 5,380,400
6.8 Total other operating expenses 20,098,019 17,382,727 18,868,168 16,842,637
7 Profit/(Loss)beforetaxandexceptionalterms 11,987,743 10,507,075 12,514,729 10,705,4578 Exceptionalitems-earlyretirementcosts (1,342,509) - (1,342,509) -8 Exceptionalitems-shareofprofitofassociate 270,976 365,368 - -
9 Profit/(Loss)beforetax 10,912,210 10,872,444 11,172,221 10,705,457
10 Currenttax 3,453,288 1,996,713 3,373,937 1,958,09211 Deferredtax (552,075) (232,454) (553,043) (231,826)
12 Profit/(Loss)aftertaxandexceptionalitems 8,014,997 9,108,185 8,351,326 8,979,191
GROUP BANK
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39.1.2 STATEMENT OF FINANCIAL POSITION
31-Dec-14 31-Dec-13 31-Dec-14 31-Dec-13 KSHS.’000 KSHS.’000 KSHS.’000 KSHS.’000 Audited Audited Audited Audited
A ASSETS
1 Cash(localandforeign) 9,455,086 9,196,193 8,970,240 8,908,3162 BalancesduefromCentralBankofKenya 14,880,245 11,516,976 13,954,693 10,388,1723 Kenya Government and other securities held for dealing purposes 30,009 30,009 30,009 30,0094 Financialassetsatfairvaluethroughprofitandloss 559 557 501 5015a.aInvestmentsecurities:heldtomaturity- Kenya Government securities 24,643,526 13,983,393 24,460,192 13,820,482a.bInvestmentsecurities:heldtomaturity- othersecurities - 45,000 - - b.aInvestmentsecurities:availableforsale- Kenya Government securities 16,068,108 19,560,640 15,960,083 19,560,640 b.bInvestmentsecurities:availableforsale- other securities 5,072,361 5,746,273 5,072,361 5,746,2736 Deposits and balances due from local bankinginstitutions 7,847,333 2,968,294 7,845,769 3,003,5787 Deposits and balances due from banking institutionsabroad 4,963,526 7,072,622 4,969,092 7,053,2158 Taxrecoverable - 97,029 - 99,6319 Loansandadvancestocustomers(net) 179,486,355 137,087,227 178,978,586 137,051,53710 Balancesduefrombankinginstitutionsinthegroup 207,361 - 207,361 109,37911 Investmentsinassociates 1,907,722 1,688,888 755,118 755,11812 Investmentsinsubsidiarycompanies - - 1,806,449 1,748,49413 Investmentinjoinventures - - - -14 Investmentinproperties - - - -15 Property,plantandequipment 10,078,698 11,447,430 9,253,832 10,641,89716 Prepaidleaserentals 37,570 38,180 37,570 38,18017 Intangibleassets 1,712,901 1,616,772 1,363,209 1,094,51418 Deferredtaxasset 618,629 66,658 609,156 56,11319 Retirementbenefitasset - - - -20 Otherasset 8,386,078 9,053,219 8,414,876 8,768,434
21 TOTALASSETS 285,396,067 231,215,359 282,689,098 228,874,484
B LIABILITIES22 BalancesduetoCentralBankofKenya - - - -23 Customerdeposits 217,698,323 175,425,121 216,174,313 174,776,22524 Depositsandbalancesduetolocalbankinginstitutions 3,159,444 5,462,337 3,159,444 5,462,33725 Depositsandbalancesduetobankinginstitutionsabroad - - 82,282 -26 Othermoneymarketdeposita - - - -27 Borrowedfunds 18,269,487 10,252,392 18,269,487 10,252,39228 Balancesduetobankinginstitutionsinthegroup - - - -29 Taxpayable 149,821 - 129,171 -30 Dividendspayable - - - -31 Deferredtaxliability - - - -32 Retirementbenefitliability - - - -33 Otherliability 2,706,082 2,937,252 2,523,282 2,731,485
34 TOTALLIABILITIES 241,983,157 194,077,101 240,337,979 193,222,439
C SHAREHOLDERS’FUNDS35 Paidup/Assignedcapital 4,889,317 4,190,844 4,889,317 4,190,84436 Sharepremium/(discount) 2,889,789 3,588,262 2,889,789 3,588,26237 Revaluationreserve 439,517 460,752 403,407 407,03538 Retainedearnings/Accumulatedlosses 32,206,653 26,409,433 31,264,373 25,354,07739 Statutory loan loan loss reserve 718,421 718,026 717,844 717,84440 Otherreserve (793,356) (1,243,357) (794,062) (1,255,707)41 Proposeddividends 2,444,658 2,095,422 2,444,658 2,095,42242 Capitalgrants 535,792 554,268 535,792 554,268
43 TOTALSHAREHOLDERS’FUNDS 43,330,791 36,773,649 42,351,119 35,652,045
43.1Non-Controllinginterest 82,118 364,608 - -
44 TOTALLIABILITIES&SHAREHOLDERS’FUNDS 285,396,067 231,215,359 282,689,098 228,874,484
GROUP BANKBALANCE SHEET
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39.2 REIT MANAGER AUDITED FINANCIALS FOR THE PERIOD ENDING 31ST DECEMBER 2014
39.2.1 STATEMENT OF COMPREHENSIVE INCOME
39.2.2 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014
2014 2013 Note Sh’000 Sh’000
Feesandcommissions 3 26,712,883 15,629,146Interestincome 4 856,293 555,878Otherincome 1,045,119 -Staffcosts 5 (26,480,721) (11,695,105)Operating and other expenses 6 (8,985,086) (11,941,554)Foreignexchangegain 53,606 589,165Loss before taxation 7 (6,797,906) (6,862,470)Taxation(charge)/credit 8(a) (777,501) 1,955,164Loss for the year (7,575,407) (4,907,306)Other comprehensive income - -Total comprehensive loss for the year (7,575,407) (4,907,306)
2014 2013 Note Sh’000 Sh’000
ASSETS Non current assets Equipment 9 3,898,641 4,693,156Intangible assets 10 136,724 239,267Deferred tax asset 11 98,807 2,121,927
4,134,172 7,054,350
Current assetsTradeandotherreceivables 12 9,161,504 4,896,513Duefromrelatedparties 13(b) 2,106,714 1,639,320Taxationrecoverable 8(c) 1,509,555 75,001Depositswithfinancialinstitutions 14 8,976,613 10,248,763Bankandcashbalances 17(b) 6,741,555 5,012,733 28,495,941 21,872,330
Total assets 32,630,113 28,926,680
EQUITY AND LIABILITIESCapital and reservesSharecapital 15 30,000,000 19,500,000Revenuedeficit (12,503,882) (4,928,475)
17,496,118 14,571,525
Current liabilitiesDuetorelatedparties 13(c) 12,414,614 9,730,915Trade and other payables 16 2,719,381 4,624,240
Total liabilities 15,133,995 14,355,155
Total equity and liabilities 32,630,113 28,926,680
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39.3.2 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2014
2014 2013 Note Sh’000 Sh’000
Revenue 11 66,449,448 8,810,958Directcosts (19,317,722) (26,931,345)GrossProfit 11 47,131,726 (18,120,387)AdministrativeExpenses 12 (11,245,913) (4,409,780)Exchange gain 13 2,363Profitbeforetaxation 35,888,176 (22,530,167)Taxation 7 (4,225,259) 20,767Profitfortheyear 31,662,917 (22,509,401)Other Comprehensive IncomeTotal Comprehensive Income 31,662,917 (22,509,401)
2014 2013 Note Sh’000 Sh’000 ASSETSNon-CurrentAssetsProperty,plantandequipment 4 1,862,223 2,075,261DeferredTaxasset 14 205,0323 116,80 2,067,255 2,192,064Current AssetsTradeandotherreceivables 5369,374 192,822Taxrecoverable 7 436,285Duefromdirectors 15 3,882,427CashandBankbalances 8 4,228,736 156,292 8,480,537 785,399Total Assets 10,547,792 2,977,463
EQUITY AND LIABILITIESShare capital 2 81,000 81,000RevenueReserves 3 8,941,056 {22,721,861} 9,022,056 (22,640,861)Non-Current LiabilitiesDuetoDirectors 15 20,942,822 20,942,822Current LiabilitiesTradeandotherpayables 6 621,901 4,675,501TaxPayable 7 458,462Clients’FundAccount 16 445,372 1,525,735 4,675,501Total Liabilities 1,525,735 25,618,323Total equity and liabilities 10,547,792 2,977,463
39.3 PROPERTY MANAGER AUDITED FINANCIALS FOR THE PERIOD ENDING 31ST DECEMBER 2014
39.3.1 STATEMENT OF COMPREHENSIVE INCOME
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39.4 Offer Application Form
Fusion Real Estate Development Trust – Commercial
ApprovedinKenyaundertheCapitalMarketsAct(Chapter485A,LawsofKenya)Reg.No.[xxx]
OFFER APPLICATION FORM
InrespectofthePublicOfferofKenyaShillings100,000,000FusionRealEstateDevelopmentTrust–CommercialUnitsatanOfferPriceofKES23.00perUnitaspromotedbyFusionCapitalLimitedandlistingoftheUnitsontheNairobiSecuritiesExchange Limited.
Offer opens at 9.00 am on the 23rd June 2016OfferClosesat5.00pmonthe15th July 2016
The Trustee shall reject any application in whole or in part if the instructions as set out in the Offering Memorandum and the ApplicationFormarenotcompliedwith.
APPLICANT’S STATEMENT
BysigningtheApplicationFormoverleaf,I/Wetheapplicant(s)hereinstatethat:-
1. I/WehavefulllegalcapacityandhavingreadtheOfferingMemorandumandthisApplicationFormincludingthe notes at the back I/we hereby irrevocably apply for and request you to accept my/our application for the under mentionedvalueofUnitsinFusionRealEstateDevelopmentTrust-Commercial,oranylesservalueofUnitsthat may, in your sole and absolute discretion, be allotted to me/us subject to the Terms and Conditions as contained in the allocation policy under the Offering Memorandum.2. I/WeauthorizetheTrusteetoentermy/ournameintheregisterofUnitholdersofFusionRealEstateDevelopment Trust–Commercialasholder(s)ofUnitstome/usandtoissueanyrefundsduetome/usviaElectronicFunds Transfer in accordance with the terms and conditions in the Offering Memorandum.3. I/Weagreethatthisapplicationshallbeirrevocableandshallconstituteacontractwhichshallbecomebindingupon receiptbyFusionRealEstateDevelopmentTrust-Commercial,andshallbegovernedbythetermsandconditions of the units.4. I/WeacknowledgethatFusionRealEstateDevelopmentTrust-Commercialreservestherighttorejectanyapplication found to be in contravention of above declarations.5. I/Weconfirmthatallinformationprovidedbyme/usontheApplicationFormistrue.
GENERAL INSTRUCTIONS ON COMPLETING THE APPLICATION FORM
6. ApplicationscanonlybemadethroughNICCapitalLimitedortheauthorisedsellingagents.7. NICCapitalLimitedwillbepleasedtoassistinunderstandingtheapplicationprocessandsubsequentlyfillingin theApplicationForm.8. Wherenecessary,applicantsarerequestedtoconsulttheirfinancialadvisor.Theoffercloseson15th July 2016.9. UseoriginalApplicationFormonly.Photocopieswillnotbeaccepted.10. Usecapitalletterswithonlyblack/bluebiro/ink,withinthegridspacesprovided.Alterations(otherthandeletion ofalternatives)mustbeauthenticatedbythefullsignatureoftheapplicantorpreferablyanewformused.11. Noindividualororganizationcanmakeanypromisescontrarytotheallocationcriteriaspecifiedinthe Offering Memorandum.12. Receiving Bank details: Bank: NIC Bank; Branch: NIC House, Masaba Road; Account No: 1003535588; Account Name: Fusion D-REIT Offer; SWIFT Code: NINCKENA
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CDS A/C No.
CDS A/C No.
OFFER APPLICATION FORMTS F
TS F
Serial No: CDA Code:PLEASE COMPLETE IN CAPITAL LETTERS USING BLUE/ BLACK INK
A: APPLICANT POOL: (Tick as applicable)
Applicant type: Retail/ Individual Institutional Tax status: Taxable Exempt
Residence: Resident Non Resident Citizenship: Kenyan East African Foreigner
B: (i) PRIMARY APPLICANT DETAILS: (Names as per National ID / Passport)Surname (Last Name) CDS A/C No.
First Name and Other Names
Passport Number / ID Number / Alien ID Number Country of Issue
(ii) JOINT APPLICANT 1 DETAILS: (Names as per National ID / Passport)Surname (Last Name)
First Name and Other Names
Passport Number / ID Number / Alien ID Number Country of Issue
(iii) JOINT APPLICANT 2 DETAILS: (Names as per National ID / Passport)Surname (Last Name)
First Name and Other Names
Passport Number / ID Number / Alien ID Number Country of Issue
(iv) CORPORATE / INSTITUTIONS: (Name as per Certificate of Registration / Incorporation)Name
Registration / Incorporation No. CDS A/C No.
For Nominee Applicants Only:Account Name / Number
C: VALUE OF UNITS APPLIED FOR:Number of units applied for
D: FULL MAILING ADDRESS AND CONTACT DETAILS FOR ALL APPLICANTS:P.O. Box Postal Code Street
City/ Town Country
Telephone Number Mobile Number
Email Address
Fax Number
PRINT ONLY WITHIN BOXES G OOD BAD
Counrty of Registration / Incorporation
Minimum Application Amount of KShs. 5,014,000 (add KShs 35 for CDSC)
Multiply by price per Unit (KShs)
113
REFUND & DIVIDEND DISPOSAL DETAILS
Serial No:
E:
Electronic Funds Transfer OnlyName of Bank Bank Code
Name of Branch (e.g. MOI AVENUE)
Account Number
F: SIGNATURES
Signature 1 Signature 2 Company Seal
Date (DD / MM / YYYY)
/ /
G: FOR OFFICIAL USE ONLY:
H: INVESTOR RECEIPT:
Authorized Placement Agent’s Stamp
&
2 0 1 6
REFUND PAYMENT:Please provide Bank details for EFT/SWIFT Transfers(Bank details must be confirmed either by attaching a voided cheque or provision of a bank statement)
Serial No Name (Separate names with one box)
Number of Units Amount Paid (KShs) CDA Code Account Number (No leading zeros) LI/LC/FI/FC
Selling Agent's Name Stamp Date
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39.5 Letter of Undertaking
[ON LETTERHEAD OF BANK/CUSTODIAN/QUALIFIED INSTITUTIONAL INVESTOR (QII)]
The TrusteeFusionDevelopmentRealEstateInvestmentTrust-CommercialP O Box 48231 00100Nairobi, Kenya.
Date: Dear Sirs
UNDERTAKING IN RESPECT OF PAYMENT ON ALLOCATION OF UNITS TO [name of QII]WHEREAS[nameofinvestor](“theInvestor”)haveappliedfor[xxx]UnitsworthKES[xxx]inFusionDevelopmentRealEstateInvestmentTrust–Commercial(FREDCOMMERCIAL)beingofferedbyyouforsubscriptionassetoutintheOfferingMemorandumdated[xxx].(CapitalisedtermsusedinthisletterofundertakingshallhavethemeaningandinterpretationgiventosuchtermsintheFREDCOMMERCIALOfferingMemorandum.
NOWattherequestoftheInvestorandinconsiderationofFREDCOMMERCIALallottingtotheInvestoronthetermssetforthintheOfferingMemorandumANDinconsiderationofFREDCOMMERCIALallottingtotheInvestorUnitsworthKES[xxx]thatwehaveappliedfororsuchlesseramountasyoushallinyourabsolutediscretiondetermine,weherebyundertaketopayyouwithoutdelayorargumentandwithouttheneedtoprove,forthwithuponyourfirstwrittennoticespecifyinghowmuchhasbeenprovisionallyallottedtotheInvestor,suchsumrequestednotexceedingKES[xxx].
ShouldsuchpaymentnotbemadewithintwobusinessdaysfollowingthedeemedserviceofsuchnoticethenFREDCOMMERCIAL shall be entitled without further notice to either: treat the Investor’s application as having beenrepudiatedandcanceltheprovisionalallotmenttoitandre-allocatetheprovisionallyallottedUnitsonsuchtermsandconditionsasitshallthinkfitwithoutprejudicetoanyrightstodamagesforsuchrepudiationor;toallowusfurthertimeforpaymentonsuchtermsandconditionsasitshallthinkfitinwhicheventweshallpaydefaultinterestonallsumsoutstandingattherateof15%perannumcalculatedondailybalancesandcompoundedmonthly.
AnynoticetobeservedonusshallbeinwritingandshallbedeemedtohavebeenproperlyservedonusifdeliveredbyhandorsentbyfaxoremailtousattheaddressspecifiedinourApplicationForm.
Anynoticeshallbedeemedtohavebeenreceived,ifdeliveredbyhand,atthetimeofdeliveryor,ifsentbyfax,onthecompletionoftransmissionorifbyemailreceiptofaconfirmeddeliverynotice.
This undertaking shall be governed and construed in accordance with the laws of Kenya and we irrevocably submit to the non exclusive jurisdiction of the Courts of Kenya. If we are not a Kenyan Company and in addition to any other permitted meansofservice,weherebyirrevocablyappointtheAuthorisedSellingAgentsubmittingourApplicationfortheOfferedUnits as our agent for the receipt of any legal process.
INWITNESSWHEREOFTHISLETTEROFUNDERTAKINGHASBEENEXECUTEDBYUSTHIS______DAYOF_____2016
Signed By:
1)Name__________________________________ Signature_____________________
Title__________________________________
2)Name__________________________________ Signature_____________________
Title__________________________________
Note:QualifiedInstitutionalInvestorsareFundManagers,AuthorizedDepositoriesandInvestmentBankslicensedundertheCapitalMarketsActandInsuranceCompanieswhomanagelifefundsandlicensedbytheInsuranceRegulatoryAuthority.
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