fusion real estate development trust- offering memorandum

7/25/2019 Fusion Real Estate Development Trust- Offering Memorandum

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20thJUNE 2016


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Fusion Real Estate Development

Trust - Commercial

OFFERING MEMORANDUM

20TH

JUNE 2016In 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 shouldbe aware that there is no recourse to the assets of the Issuer orthe Trustee.

The investment in REIT Securities is an equity investment andas a REIT Securities Holder in the REIT you invest as an equity

investor. Distributions and return of capital are not guaranteedand are dependent on the performance of the assets of the REIT.

Should the Trustee exercise its authority to borrow on behalfof the Trust then Unit Holders rights to distributions and to theassets will rank after the payments to creditors.

The Trustee, REIT Manager and other parties are also entitledto 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 ADJU DICATION D B VALUATION

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1. IMPORTANT NOTICE 10

2. DECLARATIONS 11

3. CORPORATE INFORMATION OF

THE MAIN PARTIES 12

3.1 The Promoter 123.2 The Trustee 12

3.3 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 REIT Structure, Key Parties and ow of funds 25

8.2 The Offer 27

8.3 Reasons for the Offer 27

8.4 Timetable of Principal Events 27

8.5 Minimum Subscription and Application Size 27

8.6 Underwriting 27

8.7 Basis of REIT Units Initial Price 27

9. ELIGIBLE ASSETS OF THE TRUST AND

ACTIVITIES OF THE SCHEME 28

9.1 Eligible and permitted assets of the REIT 28

9.2 Assets to be vested in the Trust 28

9.3 Initial development and construction of the REIT 29

9.4 Strategy of the REIT Manager in implementing

the objectives 29

9.5 Permitted non-real estate assets and restrictions on

investment and REIT Managers strategy as regards

such investment 29

9.6 Investment Policy Statement 29

9.7 Risk management strategies to be employed

by the REIT Manager 30

9.7.1 Internal risk management 30

9.7.2 Independent checks 30

9.8 Level of Borrowings and the assumed terms

and interest rates 319.8.1 Limitations on Borrowing under the Regulations 31

10. THE TRUSTEE 32

10.1 Senior Management 32

10.2 Co-operative Bank role as trustee 34

10.3 Trustees power to borrow on behalf of trust and charge

or pledge assets as security 35

10.3.1 Trustess power under trust deed to borrow 35

10.3.2 Limits contained in the act or regulation 36

10.3.3 Circumstances in which REIT Securities Holder may be

required to vote to approve a borrowing by the Trustee 36

10.3.4 Implications of the Trustee exceeding the limits in Act orRegulations or the limits set out in the Trust Deed 36

Contents

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11. THE PROMOTER 37

11.1 Overview 37

11.2 Investment Principles 37

11.3 Shareholding Structure 37

11.4 Board of directors 37


11.6 Resources and experience in the conduct of development and construction activities 40

11.7 Minimum regulatory investment to be maintained by the Promoter 41

11.8 Relationship between the Promoter, REIT Manager and the Owners of the asset to be transferred 41

11.9 Promoters capacity to nd cost overruns 41

12 THE REIT MANAGER (FUSION INVESTMENT MANAGEMENT LIMITED) 42

12.1 Overview 42

12.2 Products and Services 42

12.3 Board of Directors 42


12.5 Fusion Investment Managements role as REIT Manager 45

12.6 REIT Managers Terms of Appointment 45

12.7 Shareholding Structure 45

4013. THE PROPERTY MANAGER 46

13.1 Overview 46

13.2 The services we Offer 46

13.3 Property Management services 46

13.4 Property Managers sales strategy 49

14. THE STRUCTURAL ENGINEER 50

14.1 Overview and Background 50

14.2 Services 50

14.3 Key Personnel 50

14.4 Role of the Structural Engineer 52

14.5 Timing for the submission of the Structural Engineers Report 52

14.6 Potential conicts of interest of the Structural Engineer 52

15. THE PROPERTY VALUER 53

15.1 Key personnel 53

15.2 Policy in relation to revaluations 53

15.3 Potential conicts of interest of the Property Valuer 53

16. THE PROJECT MANAGER CERTIFIER 54

16.1 Overview 54

16.2 Background 5416.3 Services 54

16.4 Key Personnel 54

16.5 Roles, duties, responsibilities and obligations of the PMC 54

16.6 Timing for the submission of the initial Project Manager Certiers Report 54

16.7 Potentially conicting interests or competing roles of the PMC 54

17. KEY TERMS OF THE TRUST DEED AND SCHEME DOCUMENTS 55

17.1 Key aspects of the Trust Deed 55

17.1.1 Key parties roles, responsibilities and obligations 55

17.1.2 Liabilities of the Trustee and REIT Manager 55

17.1.3 Powers of the Trustee and REIT Manager 55

17.1.4 Appointment, removal, retirement or replacement of Parties 5517.1.5 Valuations 55

17.1.6 Meetings of Securities Holders 55

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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 holders 56

17.1.8 Requirements for listing 56

17.1.9 Rights and limits on the ability to call for or to obtain redemption of REIT securities 56

17.1.10 Circumstances in which connected persons are not permitted to exercise voting rights in respect

of REIT Securities held by them 56

17.1.11 Maximum fees and charges permitted by the trust deed and payable by investors either directly or

indirectly out of the assets of the trust 56

17.1.12 Permitted expenses, costs and charges payable out of or reimbursable from the assets of the fund 56

17.1.13 The termination or winding up of FRED - COMMERCIAL 56

17.2 Summary of the material terms of other scheme documents 57

17.2.1 Contract with the REIT Manager 57

17.2.2 Contract with Legal Advisor 57

17.2.3 Contract with Project Manager Certier 58

17.2.4 Contract with Structural Engineer 58

18. OVERVIEW OF PROJECTS TO BE UNDERTAKEN 59

18.1 Greenwood City 59

18.2 Ownership of SPV 59

18.3 Intentions of the Transferors and Lock-Up Period 59

18.4 FRED - Commercial Sources and Uses of Fund 59

18.5 Proforma Project Time Scale and Phasing 60

18.6 Regulatory Approvals 60

18.7 Greenwood City Project Status Update - May 2016 60

18.7.1 Summary of May 2016 Valuation Report 61

18.7.2 Summary of May 2016 Project Status Report 63

19. PRO-FORMA FINANCIAL INFORMATION 66

19.1 Income Statements 66

19.2 Balance Sheet 66

19.3 Cash ow Statement 67

20. KEY ASSUMPTIONS AND SENSITIVITY ANALYSIS 68

20.1 Key Assumptions 68

20.2 Sensitivity Analysis 68

20.2.1 Construction Period: Base Case 68

20.2.2 Construction Period: + 6 Months 69



20.2.5 Post Development Period: + 6 Months 70



21. FRED - COMMERCIAL VALUATION AND VALUATION BASIS 72

21.1 Valuation Summary 72

21.2 Overview of Valuation Approaches and Methods 72

22. ASSET VALUATION AND VALUATION BASIS 73

22.1 Assets to be vested in the Trust 73

22.2 Assets Valuer 73

22.3 Valuation Basis 73

22.4 Valuation Summary 73

22.5 Implications of failure to invest within 180 days 74

22.6 Policy in relation to revaluations 74

23. INVESTMENT CONSIDERATIONS 75

23.1 Opportunity for portfolio diversication 7523.2 Liquidity 75

23.3 Opportunities in the real estate sector 75

23.4 Experienced and incentivized team 75

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24. ECONOMIC OVERVIEW 76

24.1 Kenya Economic Performance 76

24.2 Macro-Sector Overview 76

24.3 Macro-Economic Overview 77

24.4 Economic overview of Meru 79

25. REAL ESTATE SECTOR OVERVIEW 80

25.1 Property market segments 80

25.2 Trends in the Housing Market 8125.3 Private sector players in the housing sector 82

25.4 Growth in value of approved building plans 82

25.5 Housing market projections 83

25.6 Regulatory framework 84

25.7 Analysis of Demand for Housing 84

26. ACCOUNTS & FINANCIAL STATEMENTS 86

27. RISK FACTORS 89

27.1 Risks Related to the Assets of FRED - Commercial 89

27.2 Risks Related to FRED - Commercials Securities 91

28. FEES, COSTS AND EXPENSES 92

28.1 Fees, costs and expenses in relation to the Issue or Offer of the REIT securities 92

28.2 Fees, costs and expenses payable by the Trustee 92

28.3 Statement of the Estimated MER of the REIT 92

28.4 Limits imposed by the Regulations on the charging of fees or reimbursement of expenses 92

29. DISTRIBUTION POLICY AND FACTORS DETERMINING DISTRIBUTION 93

29.1 Distribution Policy per the Trust Deed 93

29.2 Distribution of Realized Capital Gains 93

29.3 Retention of Realized Capital Gains 93

29.4 Powers and Obligations of the REIT Manager and the Trustee with respect to distributions 93

29.5 Implications of failure to make distributions as per the Regulations 93

30. TAXATION, DISCRETION AS REGARDS DISTRIBUTIONS & IMPLICATIONS FOR

TAXATION TREATMENT OF THE REIT AND DISTRIBUTIONS 94

30.1 Taxation treatment of the REIT 94

30.2 Tax on distributions to investors 94

30.3 Stamp duty 94

30.4 Tax treaties 94

30.5 Expert opinions on tax treatment 94

30.6 Circumstances in which taxation treatment may vary 94

31. TRANSFERABILITY OF REIT SECURITIES, LISTING AND REDEMPTION 95

31.1 Restriction on the transferability of the REIT securities. 95

31.2 Listing of the REIT securities 95

32. EXPERT OPINIONS 96

32.1 Summary of SPV valuers report 96

32.2 Summary of pre-feasibility report 96

33. MEETINGS, REPORTS AND ACCOUNTS & REIT SECURITIES HOLDERS RIGHTS 97

33.1 Requirement for meetings and the rights of REIT securities holders to require the calling of meetings; 97

33.2 Notices and voting 97

33.3 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 97

33.5 REIT securities holders right to receive reports and nancial statements 98

33.6 Statement on the key rights of REIT securities holders 98

34. ADDITIONAL INFORMATION 99

34.1 Material Contracts 99

35. CONSENTS 100

36. DOCUMENTS AVAILABLE FOR INSPECTION 101

37. APPLICATION FOR REIT SECURITIES & APPLICATION FORM 102

37.1 Acceptance and Application Procedures 102

37.2 Opening and Closing Date of the Offer 102

37.3 Application Money 102

37.4 Rejection policy 104

37.5 Refund policy 104

37.6 Allocation Policy 104

37.7 Foreign Investors 104

37.8 How to complete the application 104

37.9 Minimum number and value of REIT securities that can be applied for 10437.10 Allocation of Units 104

37.11 Qualication of an investor as a professional investor 104

38. AUTHORISED SELLING AGENTS 105

39. SCHEDULES/ APPENDICES 107

39.1 Audited Financial Statements for the period ending 31st December 2014 of Trustee 107

39.1.1 Statement of Comprehensive Income 107

39.1.2 Statement of Financial Position 108

39.2 REIT Managers Audited Financials 109


39.2.2 Statement of Financial Position 10939.3 Property Managers Audited Financials 110


39.3.2 Statement of Financial Position 110

39.4 Offer Application Form 111

39.5 Letter of Undertaking 114

39.6 Legal Opinion 115

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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.

1 Important Notice

The Fusion Real Estate Development Trust - Commercial

(FRED - COMMERCIAL) Offer is restricted and

therefore is only open to Professional Investors as dened

in the Denitions 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 the Promoter or the Issuer) and hasbeen prepared in respect of the issue and subscription of theUnits being issued by Fusion D-REIT (the Development andConstruction Real Estate Investment Trust or the D-REIT)and the subsequent listing of the Units on the NSE. No REIT

Securities can be issued based on this Offering Memorandummore than six months after the stated date of publication ofthis 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 theAuthority has no liability.

The NSE has given permission for listing of the Units.

It is expected that the trading of the Units will commence onThursday, July 28th 2016. The NSE assumes no responsibilityfor the correctness of any of the statements made or opinions orreports expressed in this Offering Memorandum. Admission of theUnits issued pursuant to the D-REIT regulations on the NSE is notto be taken as an indication of the merits of the Promoter or of theUnits.

If you are in any doubt about the contents of this document or thenature or the transaction or investment or the risks attached to the

investment then you should consult a person licensed under theCapital Markets Act who specializes in advising on investments inor acquisitions of securities.

Legal Advisors OpinionsMboya Wangongu & Waiyaki, the Legal Advisors, have givenand not withdrawn their written consent for the inclusion in thisOffering Memorandum of their Legal Opinion, and the referencesto their names, in the form and context in which they appear, andhave authorized the contents of the said Legal Opinion which formpart of the documents available for inspection.

Reporting Accountants OpinionThis Offering Memorandum contains statements from Deloitte &Touche, the Reporting Accountants, which constitute a statementmade by an expert in terms of Reg. 17(1) (i) of the Regulations.The Reporting Accountants have given and not withdrawn theirconsent to the issue of the said statements in the form and contextin which they are included in this Offering Memorandum.

Forward-looking statementThis Offering Memorandum contains forward-looking statementsrelating to the REITs proposed business. These forward-lookingstatements can be identied by the use of forward-looking terminology

such as believes, expects, may, is expected to, will,

will continue, should, would be, seeks or anticipatesor similar expressions or the negative thereof or other variationsthereof or comparable terminology, or by discussions of strategy,

plans or intentions. These statements reect the current views of

the REIT Promoter with respect to future events and are subject tocertain risks, uncertainties and assumptions. Many factors couldcause the actual results, performance or achievements of the REITto be materially different from the future results, performance orachievements that may be expressed or implied by such forward-looking statements. Some of these factors are discussed in moredetail under Risk Factors. Should one or more of these risks or

uncertainties materialize, or should underlying assumptions proveincorrect, actual results may vary materially from those described

in this Offering Memorandum as anticipated, believed, estimatedor expected.

This Offering Memorandum is dated:20thJune 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 documentscontain information which could distort the interpretation

of this Offering Memorandum.

In accordance with the provisions of Regulation 25 of the

REITs 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 Kamencu

Chairman, Fusion Capital Limited Director, Fusion Capital Limited

Signed..................... Signed.....................

Luke Kinoti Nelly Mbugua

Chief Executive Ofcer, Fusion Capital Limited Director, Fusion Capital Limited

Signed. Signed.....................

Susan Kagundu Constantine Malai

Director, Fusion Capital Limited Director, Fusion Capital Limited

Signed..................... Signed.....................

Dr. James Mageria Daniel Kamau

Director, Fusion Capital Limited Director, Fusion Capital Limited

We, the Lead Transaction Advisor and the Legal Advisor, hereby state that this Offering Memorandum and the Scheme

Documents comply with the Act and the Regulations.

Signed..................... Signed.....................

Maurice Opiyo Peter M. Waiyaki

Managing Director NIC Capital Limited Partner Mboya Wangongu & 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 suchstatements in the Offering Memorandum.

For the avoidance of doubt, the liability of the Trustee shall be

limited 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, 1stNgong 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. Box 47538 - 00100, Nairobi

Luke Kinoti Chief Executive Kenyan P.O. Box 47538 - 00100, Nairobi

Susan Kagundu Executive Director, Finance Kenyan P.O. Box 47538 - 00100, Nairobi

Daniel Kamau Executive Director, Real Estate Kenyan P.O. Box 47538 - 00100, Nairobi

Constantine Malai Non- Executive Director Kenyan P.O. Box 47538 - 00100, Nairobi

Dr. James Mageria Non- Executive Director Kenyan P.O. Box 47538 - 00100, Nairobi

Kimathi Kamencu Non- Executive Director Kenyan P.O. Box 47538 - 00100, Nairobi

Nelly Mbugua Non- Executive Director Kenyan P.O. Box 47538 - 00100, Nairobi

Company Secretary - Livingstone Associates of P.O. Box 30029 - 00100, Nairobi

CONTACT INFORMATION FOR THE TRUSTEE

Co-operative Bank of Kenya Limited

Co-operative Bank House,

2ndFloor, Haile Selassie Avenue

P.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 Limited

ACK Garden House, Block A, 1stNgong Avenue

P.O. Box 47538 - 00100 Nairobi,

Tel: +254 (020) 2738460

DIRECTORS OF THE REIT MANAGER


Stanley C. Muchiri, EBS Chairman Kenyan P.O. Box 48231 - 00100 Nairobi

Julius M. Riungu Vice Chairman Kenyan P.O. Box 48231 - 00100 Nairobi

Dr. Gideon M. Muriuki,

MBS Managing Director Kenyan P.O. Box 48231 - 00100 Nairobi

Macloud Malonza Director Kenyan P.O. Box 48231 - 00100 Nairobi

J. Sitienei Director Kenyan P.O. Box 48231 - 00100 Nairobi

R. L. Kimanthi Director Kenyan P.O. Box 48231 - 00100 Nairobi

Benedict Simiyu Director Kenyan P.O. Box 48231 - 00100 Nairobi

W. Ongoro Director Kenyan P.O. Box 48231 - 00100 Nairobi

R. Simani Director Kenyan P.O. Box 48231 - 00100 Nairobi

Lawrence Karissa Director Kenyan P.O. Box 48231 - 00100 Nairobi

John Murugu Director Kenyan P.O. Box 48231 - 00100 Nairobi

W. J. MwambiaRepresenting PS

National TreasuryKenyan P.O. Box 48231 - 00100 Nairobi

Company Secretary - Rosemary Majala Githaiga of P.O. Box 48231 - 00100 Nairobi


John G. Msafari Chairman,Non-Executive

Kenyan P.O. Box 47538 - 00100, Nairobi

Dr. Philip Goodwin Executive Director British P.O. Box 47538 - 00100, Nairobi

Luke Kinoti Chief Executive Kenyan P.O. Box 47538 - 00100, Nairobi

Gladys Mboya Non-Executive

Director


Charles Mbui Non-Executive

Director


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.O Box 44599 - 00100, Nairobi, KenyaTel: +254 20 2888000 / 4948000,

Fax: +254 20 2888505

Contact: Maurice Opiyo

Email: [email protected]

Mboya Wangongu & Waiyaki Advocates

Lex Chambers, Maji Mazuri Road,

Off James Gichuru RoadP. O. Box 74041 - 00200, Nairobi, Kenya

Tel: +254 20 2160312,

Fax: +254 20 2160312

Contact: Peter M. Waiyaki


Reporting Accountant Registrar

Deloitte & Touche

Certied Public Accountants (Kenya)

Deloitte Place, Waiyaki Way, Muthangari

P.O. Box 40092 - 00100, Nairobi, KenyaTel: +254 20 4230000,

Fax: +254 20 4448966

Contact: Freda K. Muchena


CDSC Registrars Limited

Nation Centre, Kimathi Street

P.O. Box 3464 - 00100, Nairobi, Kenya

Tel: +254 (20) 2912000Contact: Marion Kioi


Structural Engineer Property Valuer

Multiscope Consulting Engineers Limited

Silverpool Ofce Suites, 3rdFloor

Jabavu Lane, Hurlingham

P.O. Box 12012 - 00100, Nairobi, KenyaTel: +254 20 2734744; +254 722 703475

Fax: +254 20 2717736

E-mail: [email protected]

Ngotho Property Consultants Limited

7thFloor, Tower A, Eden Square,

Chiromo Road, Westlands

P.O Box 1870 - 00606, Nairobi, KenyaTel: +254 728130925, +254 20 3673309

Contact: Paul Ngotho


Project Manager Certier Property Manager

Beeque Consultants Limited

Princess Flats, Unit No. 11

Kabarnet Road, Off Ngong Road


Tel: 0722 667146, 0733 734535,Fax: +254 20 577269

Contact: John M. Mburire


Citiscape Valuers & Estate Agents Limited

1stFloor, Occidental Plaza,

Muthithi Road, Westlands

P.O. Box 16062 - 00100 , Nairobi, Kenya

Tel: +254 20 3742169; +254 20 2503636;+254 708 848481; +254 733 785698

Contact: Nelly K. Mbugua



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Tax Consultant Asset (SPV) Valuer

Deloitte & Touche

Certied Public Accountants (Kenya)

Deloitte Place, Waiyaki Way, Muthangari


Tel: +254 20 4230000, Fax: +254 20 4448966

Contact: Maurice Wangutusi


Burbidge Capital Limited

4thFloor, Nivina Towers,

Museum Hill, Westlands Road, Westlands

P.O Box 51525 - 00100, Nairobi, Kenya.

Tel: +254 20 2100102; +254 20 3744618

Contact: Edward Burbidge


Lead Sponsoring Broker Receiving Bank

African Alliance Kenya Investment Bank Limited

1st Floor, Wing B, Transnational Plaza,

Mama Ngina Street, NairobiPO Box 27639 - 00506, Nairobi, Kenya

Tel: +254 20 2762664 / 27620000

Contact: Alistair Gould


NIC Bank Limited

NIC House, Masaba Road

P.O. Box 44599 00100, Nairobi, Kenya

Tel: +254 (20) 2888000,

Fax: +254 (20) 2888505

Contact: Peter Muthini

Email:[email protected]


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5 Denitions and Interpretations

The following terms shall have the respective meanings set

out below:

Accounting period means the period of 12 months

starting on the First day of January and ending on the last

day of December each year;

Actrefers to the Capital Markets Act, Chapter 485A of the

Laws of Kenya, as amended from time to time;

Auditors means the independent auditor appointed from

time to time by the Trustee as auditor of the Scheme, subject

to the provisions of the Act and the Regulations;

Authority or CMA means the Capital Markets

Authority established under the Act;

Authorized Units means all Units that may be issued at

any given time by FRED - COMMERCIAL, whether they

have been issued (and are therefore Units in Issue) or not;

Beneciary means any holder of REIT Securities of

FRED - COMMERCIAL from time to time;

Business Day means a day which is a working day in

Kenya and excludes Saturday, Sunday, and public holidays;

CDS Account means a central depository electronic

account held at CDSC that holds nancial securities suchas shares and bonds;

CDSC means the Central Depository & Settlement

Corporation Limited;

Closed ended fund means a fund or trust in which-

(a) A person invests by subscribing for an issue of

REIT Securities or by acquiring REIT Securities in a

secondary market;

(b) The value of the investment uctuates over

time as determined by market price for theREIT Securities;

(c) The number of the REIT Securities issued

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) The REIT Securities Holder, except where there is

a reduction in the capital of the fund initiated

by the trustee or as a consequence of termination orwinding up of the trust-

(i) Is not entitled to require the trustee to redeem

the REIT Securities; and

(ii) May only exit the investment in the REIT

Securities by selling the units in a secondary market;

Connected person or connected party in relation to

the real estate investment trust scheme includes:

(a) The REIT Manager;

(b) A valuer appointed to undertake a valuation of

the scheme;

(c) The Trustee;

(e) A Substantial Holder of REIT Securities in

the Scheme;

(f) A director, a senior executive or an ofcer of anyperson referred to in (a), (b) and (c) above;

(g) An associate (as Associate is dened in the Act,

as amended from time to time) of any person

referred to in (d) and (e) above;

(h) A controlling entity, a holding company, a

subsidiary or an associated company of

any person referred to in (a) to (d) above;

D-REIT means a development and construction real estate

investment trust authorized as such by the Authority underthe Regulations;

D-REIT Scheme or development and construction

real estate investment trust scheme means a real estate

investment trust scheme authorized as such by the Authority

under the Regulations;

Eligible Investments in respect of FRED - COMMERCIAL

means the assets and investments specied under Regulation

76 of the Regulations;

Eligible Real Estate has the meaning attributed to it under

the Regulations;

Foreign Investor means a person eligible for classication

as a professional investor under the Regulations but which is

neither established in nor a citizen of any of the East African

Partner States;

FRED - COMMERCIAL means the Fusion Real Estate

Development Trust - Commercial established under the

Trust Deed;

Fund means all contributions of money or moneys worth,

property or real estate, or other income or assets of FRED- COMMERCIAL, including money borrowed or raised

by 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

rights of the beneciaries of the trust together to institute

an action against any party including the Trustee;

Initial Offer means the rst offer or issue of REIT

Securities made to persons other than the Promoter or

parties connected to the Promoter or REIT Manager of

FRED - COMMERCIAL;

Investor means a holder of REIT Securities of FRED -

COMMERCIAL and who is a beneciary under the Trust

Deed;

Issue Price means the Offer price of one (1) Unit which

is KES 23.00;

Management Fee means amount payable by the REIT

Trustee to the REIT Manager for managing FRED

COMMERCIAL in accordance with the terms of the REIT

Management Agreement;

Net Asset Value or NAV means the value of all assets

of the Fund less the value of all liabilities of the Trust,

including Trustee and Management Fees, as at the day the

calculation is made;

Net asset value per unit or NAV per unit means the

NAV divided by the number of units of REIT Securities

issued and not redeemed on the day the calculation is

made;

NSE means the Nairobi Securities Exchange Limited;

Offer Units or Units on Offer means 100,000,000

Units in FRED - COMMERCIAL on offer pursuant to this

Offering Memorandum;

Ordinary Resolution means a resolution passed by

unitholders by simple majority;

Professional Investor means-

(a) Any person licensed under the Act;

(b) An authorized scheme or collective investment

scheme;

(c) A bank or subsidiary of a bank, insurance company,

co-operative society, statutory fund, pension or

retirement fund; or

(d) A person including a company, 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

KES 5,000,000/=.

Real Estate Investment Trust Assets or REIT Assetsincludes all assets of the REIT;

Real Estate Investment Trust Fund or REIT Fund

has the same meaning as the Fund;

Realized Capital Gains means cash equivalent of

appreciation of capital assets formerly held by the REIT

disposed through sales or letting;

Recognized Securities/Stock Exchange means the

NSE, or any other securities exchange in or outside Kenya

approved by the REIT Manager and the Trustee, subject to

the Act, on which the REIT Securities created by the Trust

Deed are listed;

Register means the register of the holders of FRED

- COMMERCIAL Securities, as maintained by or on

behalf of the Trustee pursuant to the Trust Deed and the

Regulations;

Regulations means the Capital Markets (Real Estate

Investment Trusts) (Collective Investment Schemes)

Regulations, 2013 as amended from time to time;

REIT means real estate investment trust and the REIT

means this REIT established by the Trust Deed;

REIT Manager means the person licensed as a REIT

Manager 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 agreement

entered into between the REIT Trustee and the REIT

Manager with respect to the management of the REIT and

dated 1st March 2016;

REIT Securities in relation to FRED - COMMERCIAL

means units in FRED COMMERCIAL, and in relation

to any other REIT Scheme means units in such real estate

investment trust or a real estate investment trust scheme;

Securities means any instrument dened as such underthe Act and includes REIT Securities;

Securities Holder or Units Holder means any personwho has purchased and holds any Units and is registered inthe Register as evidence that he holds the Units;

Scheme means a real estate investment trust scheme asdened in the Regulations;

Scheme Documents include-

(a) This Offering Memorandum, including any conversion

or supplementary Offering Memorandum;

(b) The Trust Deed and any amending, supplemental or

replacement Trust Deed;

(c) Any document appointing a REIT Manager or setting

out the terms of appointment, the role or obligationsof a REIT Manager;


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(d) Any document appointing a Property Manager, Project

Manager Certier or Structural Engineer or setting outthe terms of appointment, the role or obligations ofsuch persons;

(e) Any document described in (b), (c) or (d) above whichrelates to an investee trust; and

(f) The Memorandum and Articles of Association of any

investee company and any shareholders agreementincluding any amending, supplemental or replacementMemorandum and Articles of Association orshareholders agreement.

Special Resolution means a resolution passed by a majorityof not less than three-fourths of such holders of REITSecurities who, being entitled so to do, vote in person (orwhere proxies are permitted by proxy) at a general meetingof holders of FRED - COMMERCIAL Units of which atleast twenty one days written notice specifying the intentionto propose the special resolution has been given;

Special Purpose Vehicle or SPV means Meru

Greenwood Park Limited, a property holding companybeing the registered owner of Land Reference Number MeruMunicipality Block I/3;

Substantial holder of REIT Securities means a personwho holds fteen per centum (15%) or more of the issuedFRED - COMMERCIAL securities, where for the purposesof calculating the fteen per centum (15%), in addition toany REIT Securities held by the holder, that person is alsoconsidered to be the holder of any REIT Securities held by:

(a) An associate of a holder who is an individual; or

(b) A director, senior executive, ofcer, controlling entity,holding company, subsidiary or associated company of

the holder, if the holder is an entity other than anatural person;

Total Asset Value or TAV means the value of all assetsof the fund based on the most recent valuation;

Trust Deed or Deed means the Trust Deed entered into by

the Promoter and the REIT Trustee dated 29th

February 2016(as supplemented and amended by the supplemental TrustDeed dated 15thApril 2016) that sets out the trusts governingFRED - COMMERCIAL and includes every instrument thatvaries those trusts, or affects the powers, duties, or functionsof the Trustee or manager of FRED - COMMERCIAL;

Trustee in relation to FRED - COMMERCIAL, means theTrustee herein, or his replacement or successor;

Unit means a security in FRED - COMMERCIAL beingan undivided share, right, interest or entitlement in the assetsof FRED - COMMERCIAL as a whole, and may not beconstrued to confer interest in a particular asset of the REIT;

Units in Issue means all units which have been created andissued and which have been entered in the Register includingthose held or deemed to be held by the REIT Manager, andwhich have not been cancelled;

Valuation report means a report made by a valuer; and

Valuer means a person appointed as a valuer under the Trust

Deed or by other contract and subject to the Regulations to

prepare or who is required to prepare a valuation report.

Terms not dened herein will conform to the denitions

adopted in the Act, the Regulations or the Trust Deed.


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6 Glossary of Abbreviations

CDA Central Depository Agent

CDSC Central Depository & Settlement Corporation Limited

CMA Capital Markets Authority

D-REIT Development and Construction Real Estate Investment Trust

EBIT Earnings Before Interest and Tax

FCL Fusion Capital Limited

FIM Fusion Investment Management Limited

FRED - COMMERCIAL Fusion Real Estate Development Trust - Commercial

IFRS International Financial Reporting Standard

IRR Internal Rate of Return

KES Kenya Shillings

LTA Lead Transaction Advisor

MER Management Expense Ratio

NAV Net Asset Value

NSE Nairobi Securities Exchange Limited

OM Offering Memorandum

PMC Project Manager Certier

REIT Real Estate Investment Trust

RM REIT Manager

SE Structural Engineer

SPV Special Purpose Vehicle


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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 nance its activities?

A REIT typically requires signicant and continuing

capital to buy additional assets. A REIT generally nances

its activities through security offerings and debt offerings,

including subordinated and senior debt, as well as through

nancing agreements (credit agreements, term loans,revolving lines ofcredit etc.) with banks and other lenders.

Who invests in REITs?

Besides individual investors, organizations such as pension

funds, 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, high levels of current income. For a listed D-REIT,

the minimum permissible investment is KES 5,000,000/=.

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) Is structured as an unincorporated common law

trust divided into units;

(b) Is established under a Trust Deed;

(c) Has a trustee who is independent of the REIT

Manager and the promoter; and(d) Has a REIT manager 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) Development and Construction REIT (D-REIT)

a REIT dealing in development and construction of

real estate projects;

(b) Income REIT (I-REIT) a REIT dealing in the

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?

TheRegulations require that investors in D-REIT schemes

must 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 an

investment bank, investment advisor or nancial planner

to help analyze his or her nancial objectives. These

professionals may be able to recommend appropriate REIT

investments for the investor. An investor may also contact

a REIT directly for a copy of the REITs annual report

(if any), prospectus or Offering Memorandum and other

nancial 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) Anticipated growth in earnings per unit;

(b) Anticipated total return from the REIT unit, estimated

from the expected price change and the prevailing

dividend yield;

(c) Current dividend yields relative to other yield-orientedinvestments (for example, bonds, stocks and other

high-income investments) ; and

(d) Underlying asset values of the real estate and/or

mortgages, and other assets.


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8 Key Features of the Offer

Key features of FRED - COMMERCIAL will be asfollows:

(a) It is structured as a common law unincorporatedtrust divided into units;

(b) It is established through the Trust Deed;(c) The Trustee is independent of the REIT Manager;

This section contains a summary of the Offer of units in FRED - COMMERCIAL.

FRED - COMMERCIAL is structured as a D-REIT meaning that the Trust will primarily

be involved in acquiring real estate property for development and construction.

(d) The assets in the Trust are held in the name of and aresunder the control of the Trustee.

FRED - COMMERCIAL offers for sale 100,000,000 Units

(Offer Units) worth KES 2,300,000,000. Proceeds of the

Offer will be invested in the acquisition, development and

construction of real estate development assets as described

below.

Details Statistics

Objectives of FRED -COMMERCIAL

The objective of FRED - COMMERCIAL is to generate income and capital growth byprincipally 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 takeaccount of changing economic factors, tax laws and provisions.

The objects of FRED - COMMERCIAL are set out in Clause 5 of the Trust Deed andare as follows:

5.1 the acquisition of eligible real estate, investment in eligible investments andthe undertaking of real estate development and construction projects including,

but not limited to commercial and other real estate related development andconstruction projects;

5.2 marketing and sale of real estate;5.3 retention and management of the real estate assets of the trust with the objective

of earning income from the assets;

5.4 the undertaking of incidental or connected activities and activities related to theassets of the trust; and

5.5 such other activities as may be authorized by the Regulations.

Nature of the Trust and

Redemption

FRED - COMMERCIAL is a closed ended fund meaning that among others, the Trust

has the obligation to redeem Units once they are issued. Investors will therefore only be

able to exit from FRED - COMMERCIAL by disposing of Units in the secondary market

based on market value of the units.

NOTE: LIQUIDITY OF THE UNITS WILL DEPEND ON THE DEMAND AND

SUPPLY FOR THE REIT UNITS WITHIN THE SECONDARY MARKET.

Eligibility to invest Investment in FRED - COMMERCIAL is restricted and is only open to Professional

Investors.

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.

Transferability of FRED -

COMMERCIAL Units

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.

Distribution of Realized

Capital Gains

The Regulations do not require FRED - COMMERCIAL, being a D-REIT Scheme, to

make annual distributions to the REIT Unit Holders. However, the REIT Manager may

recommend to the Trustee and the Trustee may distribute any realized capital gains to the

REIT Unit holders if and when the capital gains are realized.


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Details Statistics

Retention and Reinvestment

of Realized Capital Gains.

The REIT Manager may retain any realized capital gains and invest in new income

producing real estate, developments or buy to rent housing provided that:

(a) the REIT Manager has received approval from the REIT Unit Holder to retain the

capital gains by way of ordinary resolution; and

(b) any retained capital gains will be reinvested within two years of the date of their

realization, failing which they must be distributed within two months of the end of

the two years.

Term of the Trust FRED - COMMERICAL shall be unlimited in duration subject to the Perpetuities and

Accumulations Act (Chapter 161 of the Laws of Kenya).

Proposed Initial Projects The initial project under FRED - COMMERCIAL is Greenwood City- a mixed use

development featuring a state of the art shopping mall, a modern ofce block and high-end

two and three-bedroom apartments located at Land Reference Number Meru Municipality

Block 1/3 in Meru, Kenya.

A more detailed description of the project is set out in Section 18.1 herein.

Acquisition of Additional

Assets

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 Managers

stated investment criteria.

REIT Managers investment

strategy

FRED - COMMERCIAL shall invest in eligible investments and eligible real estate as

permitted by the Regulations for D-REITs.

FRED - COMMERCIALs investment policy shall encompass the management of FRED -

COMMERCIALs liquidity position or management of assets and liabilities to provide adequate

resources to meet anticipated fund demands.

FRED - COMMERCIALs investment policy is thus designed to guide the Trustee and the

REIT Manager in carefully deliberating and evaluating all available investment options for

investing surplus cash assets of FRED - COMMERCIAL which will provide maximum

returns in the form of net interest income earned, capital gains and an optimum liquidity

management strategy under various scenarios.

FRED - COMMERCIAL must maintain reserves to protect itself and its investors against

anticipated, 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 theOffer

KES 2,300,000,000

Estimated net proceeds

receivable by the Trust

KES 2,200,550,000


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Details Statistics

Summary of Key Risks The key risks involved in investing in FRED - COMMERCIAL include:

1. Risk Related to the Assets of FRED - Commercial

a) Political Risk

b) Insecurity Risk

c) Land Acquisition Risk

d) Economic Risk

e) Execution Riskf) Demand Risk

g) Market Risk

a. Currency Risk

b. Interest Rate Risk

c. Price Risk

h) Financing Risk

a. Counterparty Risk

b. Real Estate Market Downturn

c. Counterparty Risk

2. Risk Related to FRED Commercial Securities

a) Price Risk

b) Regulatory Risk

c) Distribution/Dividend Risk

d) Dilution Risk

e) Growth Risk

f) 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.

Financial Structuring

mechanisms

The Trustee, on behalf of the REIT, may borrow amounts of up to 60% of the Total Asset

Value. Any distributions to Unit Holders will be net of payments to senior lenders.

The Promoter on behalf of the REIT has been in high level discussions with various nancial

institutions willing to provide debt nancing for the project.

The consequences of the REIT inability to raise the necessary debt nancing is outlined in

Section 27.


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Details Statistics

Summary of obligations

of the Trustee: the

Co-operative Bank of

Kenya Limited

As Trustee, Co-operative Banks roles as outlined in the Trust Deed will include:

a) Appointment of REIT Manager and supervision of its activities;

b) Ensure that the Fund & assets of the Scheme are invested according to the Trust

Deed, income of the Scheme is applied according to Scheme Documents, insurance

of assets, payments & distributions made in accordance with the Scheme, and that

borrowing limitations are observed;

c) Maintain custody, hold, protect and control all the assets of the REIT scheme

(held in the name of the Trustee) for the benet of REIT Securities Holders as

beneciaries of the trust;

d) Act honestly and in a duciary capacity in the best interests of beneciaries and

exercise due care and diligence in the discharge of their functions;

e) Enter into borrowing arrangements for the purpose only of fullling the objectives

of 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 the Authority, appoint another

person to prepare and maintain the register on its behalf; and

g) Apply to the Authority for termination of the Scheme.

Summary of obligations of

the REIT Manager: Fusion

Investment Management

Limited

As REIT Manager, FIM will:

a) Carry out the administration of the REIT Assets including the management of the

portfolio of investments;

b) Advise the Trustee on the asset classes, if any, that are available for investment;

c) Formulate a prudent investment policy;

d) Invest the REIT Fund in accordance with the investment policy;

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) Be fair and equitable in the event of any conict of interest;

i) Credit to the REIT all monetary benets or commissions arising out of managing

the Fund, other than its Fees;

j) Account to the Trustee within thirty days after receipt of any monies payable to the

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)

Below is an outline of the various parties involved in FRED - COMMERCIAL.

The Promoter will facilitate the purchase of the SPV which is held in Trust. Thereafter, the Trustee in consultation with

the REIT Manager appoints the Valuer, Structural Engineer, Auditor and Project Manager Certier.

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 on

dividend and

re-investment

Retained returns and capital

invested in new projects

Below is an outline of the proposed ow of funds from FRED - COMMERCIAL.

Flow of Funds in the REIT


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8.2 The OfferThe REIT offers for subscription 100,000,000 units at asubscription price of KES 23.00 per unit. The Schemewill initially encompass Greenwood City - a mixed usedevelopment featuring a state of the art shopping mall, amodern ofce block and high-end two and three-bedroomapartments located in Meru, Kenya and which is furtherdescribed in Section 18. The Trust will be a closed endedfund. Furthermore the Trust, with existing Unit Holders

approval, can issue additional units for further funding of

the REITs activities. This would be to both existingand new investors. Such offer could result in dilution ofexisting Unit Holders who do not wish to exercise theirright to acquire additional units.

8.3 Reasons for the OfferThe proceeds of the Offer will facilitate the acquisitionand development of real estate development assets as

listed below within the objectives of the REIT:

Use of funds Amount (KES)

Acquisition and Development of Greenwood City 2,200,550,000

Issuance Costs 99,450,000

Total 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. Approval from CMA Monday, February 29th2016

2. Offer Open Thursday, June 23rd2016

3. Closing Offer Friday, July 15th2016

4. Allotment and Announcement Wednesday, July 20th2016

5. Final date for payment for Units to Receiving Bank for applications

against irrevocable bank guarantees Friday, July 22h2016

6. Latest date for crediting of CDS Accounts Wednesday, July 27th2016

7. Listing and Commencement of Trading/Bell Ringing Thursday, July 28th2016

8.5 Minimum Subscription and Application SizeThe REIT is subject to the receipt of not less than 7 validapplications for the Units.

Furthermore, there is no maximum application size by anyone applicant. The minimum application size per applicantis however KES 5,014,000 or 218,000 Units.

The listing will be subject to at least 25% of the Unitsin Issue being subscribed for by parties other than thePromoter, 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 Promoterin consultation with the Lead Transaction Advisor onthe basis of valuation techniques taking into account thefollowing:

(a) The countrys macro-economic outlook; (b) Appraisal values of the various properties; and (c) The projected cash ows.

* 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 investmentsspecied under Regulation 76 of the REIT Regulations,including:

(a) Investment directly in eligible real estate in accordancewith the Regulations;

(b) Investment in eligible real estate assets throughinvestment in an investee company incorporated inKenya which directly owns the eligible real estate andwhich is wholly benecially owned and controlled by

the trustee in its capacity as the trustee of theD-REIT where-

(i) The D-REIT Trustee has the absolute power atany time to appoint and, without incurring anyliability, to remove the directors;

(ii) The Trustee of the REIT, the company, the directors

and the shareholders have entered into ashareholdersagreement;

(iii) The REIT Manager of the D-REIT is appointed asthe manager of the investments of the investeecompany;

(iv) The Memorandum and Articles of Association of

the investee company and the terms of theshareholders agreement limit the objectivesof the investee company and the powers ofthe company and directors and impose the sameobligations on the company, its directors and themanager of the trust as if the investee company

was a D-REIT and an authorized schemeunder the Act and the Regulations and was subject

to the same obligations and restrictions as areimposed by the Regulations;

(v) The provisions of the Regulations on the carryingout of a valuation, reporting and audit apply to the

investee company as if the investee company wasa D-REIT and an authorized scheme under theRegulations;

(vi) The investee company invests directly in the eligiblereal estate and is recorded on the certicate oftitle or certicate of lease or register as the sole owner;

(c) Investment in eligible real estate assets through aninvestee trust in which the trustee of the D-REIT in itscapacity as trustee is the sole beneciary and has

absolute control of voting and right to appoint andremove the Trustee of the investee trust and where -

(i) The investee trust is formed under the Laws of Kenya asan unincorporated common law trust;

(ii) The D-REIT Trustee is also the trustee of the investee

trust; (iii) The REIT Manager of the D-REIT is also the manager

of the investee trust; (iv) The terms of the trust deed for the investee trust limit

the objectives of the investee trust, the trustees powersand impose the same obligations on the trustee andthe manager of the trust as if the investee trust wasa D-REIT and an authorized scheme under the

Regulations and subject to the same obligations andrestrictions as are imposed under the Regulations;

(v) The provisions of the Regulations on the carrying out of a valuation, reporting and audit apply to the investee

trust as if the investee trust was a D-REIT and anauthorized scheme under the Act and the Regulations;

(vi) The trustee as trustee for the investee trust investsdirectly in the eligible real estate and is recorded on thecerticate of title or certicate of lease or register as

the sole owner.

(d) Investment in cash, deposits, bonds or securities andmoney market instruments;

(e) Investment in a wholly benecially owned andcontrolled company which conducts real estate relatedactivities; and

(f) Investment in income producing assets including shares

in property companies incorporated in Kenya whoseprincipal business is real estate related or REIT securitiesin other Kenyan real estate investment trust schemes.

Asset Project Date of Transfer

to The Trust

Valuation (Kes) Consideration

(Cash / Securities)

100% of theissued shares inMeru GreenwoodPark Limited

Greenwood Citylocated at MeruTown Block I/3

Within 180 days ofthe close of FRED -COMMERCIAL offer.

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 REITThe REIT intends to undertake such initial developmentand construction activities as are set out in Section 18.

The following documents relevant to the development areavailable for inspection

(a) Valuation Reports summaries have been outlined inSections 21 and 22 of this Offering Memorandum.

(b) The Legal Opinion in relation to transfer or acquisition of

the assets and the title a summary of which is includedin Section 39.6.

9.4 Strategy of the REIT Manager in implementing

the objectivesIn implementing the objectives of the Trust, the REITManager will pursue a strategy encompassing:

(a) Capital Preservation:The investment of FRED -COMMERCIALs assets will ensure the preservation

of capital; (b) Medium Term Capital Growth:Capital growth with

the avoidance of excessive risk over the long term. Shortterm volatility will be tolerated if appropriate consideringthe asset class and comparable market index;

(c) Return on Investment:The attainment of the agreedinvestment performance deliverables against theaccepted benchmarks over the investment period;

(d) Liquidity:An adequate level of liquidity will be

maintained to enable FRED - COMMERCIAL to meet

its liabilities and obligations; (e) Diversication:The investment portfolio will

be diversied to the extent possible;

(f) Other Matters;

(i) Development and construction activities to be

undertaken and the budget and estimates forundertaking such activities;

(ii) Consents and approvals to be obtained and the

time frame for such; (iii) The time frame over which the total development

and construction activities are intended to be conducted; (iv) The REIT Managers strategy as to sale or lease of

the completed properties or a combination of bothand the time frame until it is anticipated that cashows will be generated;

(v) Include details of any foreign exchange exposure,

for example, as regards the acquisition of any plantor equipment or building materials; and (vi) Include details of any Structural Engineers

report or of a Quantity Surveyor or of anyProject Manager.

9.5 Permitted non-real estate assets and restrictions

on investment and REIT Managers strategy as

regards such investments

In addition to investing in real estate, FRED -COMMERCIAL may invest in the following:

(a) Cash, deposits, bonds or securities and moneymarket instruments;

(b) A 100% wholly benecially owned and controlled

company which conducts real estate related activities;and

(c) Income producing assets including 100% shares in property companies incorporated in Kenya whose

principal business is real estate related or REITsecurities in other Kenyan real estate investmenttrust schemes.

9.6 Investment Policy StatementNotwithstanding anything contained herein to the contrary,the REIT Assets may be invested only in accordance withthe following investment guidelines and the Trustee shallnot permit any of its subsidiaries, property companies orrealestate related companies or investee trusts to conducttheir operations and affairs other than in accordance withthe following investment guidelines:

FRED - COMMERCIAL shall undertake investmentactivities in line with the FRED - COMMERCIAL riskmanagement policy guidelines and shall only invest ineligible investments and eligible real estate as permitted forD-REITs by the Regulations, or any modications thereof.

FRED - COMMERCIAL shall invest its excess fundsin investments conforming to the risk appetite and riskreward matrix provided that FRED - COMMERCIAL shallnot make, or permit any of its Subsidiaries to make, anyinvestment that could result in the REIT ceasing to qualifyas an Authorized REIT Scheme under the Regulations.

FIM will set investment limits which shall be reviewedfrom time to time as per market demands and must conformto the applicable regulations.

No investment shall be made contrary to the provisions ofthe applicable regulations. In particular:

(a) Eligible real estate for FRED - COMMERCIAL shall beinvestment in real estate in Kenya, unless theRegulations otherwise allow in future;

(b) Such real estate may be owned directly or throughinvestee companies owned 100% by the Trustees orinvestee trusts of which the Trustee is 100% beneciary;

(c) FRED - COMMERCIAL will not co-own eligible realestate with any other person.

Accounting treatment of investments shall be as per theprevailing International Financial Reporting Standards(IFRS) and International Accounting Standards (IAS).

FRED - COMMERCIAL may invest in securities that havebeen approved by the Trustee and the REIT Manager, andshall include the following:

(a) Investing in income producing projects including100% of the shares of property companies incorporatedin Kenya whose principal business is real estate related orREIT securities in other Kenyan real estate investmenttrust schemes;

(b) Investing in a wholly benecially owned and controlledcompany which conducts real estate related activities;and


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(c) Investing in cash, deposits, bonds or securities andmoney market instruments;

Within one year of the date of its authorization, FRED -COMMERCIAL is expected to have invested at least thirty

percent (30%) of the total asset value directly in-

(a) Development and construction projects; or(b) Income producing real estate which FRED -

COMMERCIAL will develop or construct.

The Trustee and REIT Manager shall ensure that the realestate acquired or to be acquired as an asset of FRED -COMMERCIAL-

(a) Can be developed in the manner and for the

proposed use; (b) Is free from encumbrances at the time of acquisition

except for any charges entered into by the Trustee asauthorized by the Trust Deed and the applicableregulations; and

(c) Has reasonable prospects when the development or

construction is completed for sale for a prot orfor leasing as income producing real estate.

The Trustee and the REIT Manager shall, where the realestate acquired is leasehold, ensure that-

(a) At the time of entering into the lease, the lease has aremaining term of at least twenty ve years;

(b) The real estate has been valued as leasehold; and (c) The lease is lodged for registration.

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 andinstruments so that not more than ve percent (5%) of thetotal asset value is exposed to any one issuer or institutionor to members of the same group. This, however, shallnot apply to deposits, bonds or securities issued by, orguaranteed by, the Government of Kenya or to depositswith a banking institution licensed in Kenya.

The REIT Manager shall invest in properties that meet thefollowing criteria:

(a) Have expected returns on an IRR basis of at least 20%per annum on a gross basis (before fees);

(b) Have individual project development cost of at leastKES 400 million;

(c) Fall in the Commercial Real Estate Developmentssector;

(d) Enhance sector and geographic diversication

within Kenya; or (e) In the case of leasehold land, has at least 25 years left

on the lease.

The REIT Manager will in all instances seek to developreal estate properties for sale and use its best endeavours tosell the properties within three years of completion of eachdevelopment.

If at any point in time the investment spread is not asdened above, the REIT Manager must rectify this as soonas possible and ensure this does not exceed a period ofthirty days from the day on which the limit was exceeded.

The REIT Manager may, with the consent of the REITSecurities Holders, request that the Trustee invest up to amaximum of ten percent of the total asset value in a whollyowned and controlled company carrying out real estate

related activities including-

(a) Property management; (b) REIT management; (c) Property maintenance or design; or (d) The provision of services to tenants or to FRED -

COMMERCIAL.

This shall not include the provision of mortgages ornance except to the extent that FRED - COMMERCIALis authorized by the Regulations to provide mortgagesor nance.

For the purposes of determining the level of the investmentwhich can be made, the percentage shall be calculated byreference to the amount of the proposed investment and thevalue 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 robustrisk management process to ensure all risks are identiedand 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 extraneousrisks i.e., risks that have nothing to do with the market e.g.instance operational risks aided by Quality Audits. TheREIT Managers internal methodology toward risk will be

based on the following facets:

(a) Independent checks and controls at all levels and acrossbusiness units. This is in order to ascertain both accuracyand objectivity, as well as to provide an audit trail that

can be reviewed on call; (b) Comprehensive risk disclosure and mapping to the

Board of Directors, Regulators and Shareholders. This adds another level to the process, and ensures that

overriding levels of verication exist; and

(c) Stringent internal controls whereby every decision of

impact not only has to be reviewed by a senior memberof the business unit, but is also signed off by at least one

member of senior management. This applies oneverything from the analysis of funds available forinvestment to the pricing process. An audit trail will

be kept of all the checks for the purposes of periodicaudit reviews.


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9.7.2 Independent Checks

Auditor

FRED - COMMERCIAL will be audited annually by a

reputable independent audit rm appointed by the Trustee.

The Auditor shall report on whether the Trustee and the

REIT Manager have complied with the Regulations. The

Auditor will not be the same as the auditor of either the

Trustee or the REIT Manager

Trustee

FRED - COMMERCIAL has appointed a Trustee under

the 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

with a value of up to sixty per centum (60%) of the Total

Asset Value of FRED - COMMERCIAL.

The Trustee may borrow additional amounts on a temporary

basis (for not more than six months) of up to a maximum of

seventy-ve per centum (75%) of the total asset value with

the prior sanction of REIT Securities Holders by way of an

ordinary resolution.

9.8.1Limitations on Borrowing under the Regulations

Regulation 81 sets out the maximum levels of borrowings

by a D-REIT as follows:

(1) The trustee of a D-REIT may, subject to any restriction

or lesser limit imposed under the scheme documents,

borrow or enter into nancing arrangements-

(a) On its own initiative where such borrowing is

required to preserve the value of the assets of

the trust and is in the best interests of the REIT

securities holders; or

(b) If requested to do so by the REIT manager, to give

effect to the objectives of the scheme to acquire real estate assets, to undertake development and

construction, to undertake capital expenditure or torenance any existing borrowing.

(2) The trustee may provide security over the assets of the real

estate investment trust and scheme to secure the

borrowings under paragraph (1).

(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

to prevent the rolling over or renancing of any debt where

the amount rolled over or renanced is not more than the

amount originally borrowed.

(4) Despite paragraph (3), the trustee may, with the approval

of REIT securities holders by way of an ordinary resolution

borrow or enter into a nancing arrangement up to a

maximum of seventy ve percent of the total asset

value, for a temporary purpose for a term not exceeding

six months.

(5) Failure by the trustee to comply with the borrowing

limitation under this regulation shall not constitute

an offence.

(6) Despite paragraph (5) and where the trustee exceeds the

borrowing limits specied in this regulation -

(a) D-REIT may cease to be classied as a real estate

investment trust scheme for taxation purposes; (b) Subject to the scheme documents, the REIT securities

holders may institute a cause of action against the

trustee or the REIT manager; and

(c) The Authority may revoke the authorization issued to the

REIT under regulation 18.

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

The Bank was initially registered under the Co-operative Societies

Act at the point of founding in 1965. This status was retained

up to and until 27thJune 2008 when the Banks Special GeneralMeeting resolved to incorporate under the Companies Act with a

view to complying with the requirements for listing on the NSE.The Bank went public and was listed on 22ndDecember 2008.

Shares previously held by the 3,805 co-operatives societies and

unions were ring-fenced under Coop Holdings Co-operativeSociety Limited which became the strategic investor in the Bankwith a 64.56% stake.

The Bank has three subsidiary companies, namely:

(a) Kingdom Securities Limited, a stock broking rm with

the bank holding a controlling 60% stake;

(b) Co-opTrust Investment Services Limited, the fundmanagement subsidiary wholly-owned by the bank; and

(c) Co-op Consultancy & Insurance Agency Limited

(CCIA), the corporate nance, nancial advisory and

capacity- building subsidiary wholly-owned by the bank.

The Bank has offered custodial services to a wide range ofretirement funds, collective investment funds and personalinvestment groups since 2001 and is regulated by the following

bodies:

(a) The Capital Markets Authority; (b) The Retirement Benets Authority; and

(c) Central Bank of Kenya (CBK).

The Bank is also regulated under the Central DepositoriesAct as a Central Depository Agent (CDA) and holds a CMA

licence as a REIT Trustee.

The Co-operative Bank of Kenya Limited (the Bank) is incorporated in Kenya

under the Companies Act and is also licensed to do the business of banking under

the Banking Act.

10.1 Senior Management

Name Prole

Dr. Gideon Muriuki, MBS, (51)

Group Managing Director

& CEO

Appointed Managing Director in 2001. Joined the bank in 1996 as a Senior Corporate

Manager then Director, Corporate and Institutional Banking in 1999. Holds a Bachelor

of Science degree in Mathematics, is a Fellow of the Kenya Institute of Bankers andwas awarded an Honorary Doctorate in Business Management. He has over 25 years

experience in banking and nance. He is also the Managing Director of Co-optrust

Investment Services Limited and Co-op Consultancy & Insurance Agency Ltd - both

subsidiaries of the Bank. He is a Director of Kingdom Securities Limited, Vice-President

Africa - International Co-operative Banking Alliance (ICBA), Executive Committee

Member of the Kenya Bankers Association and Chairman, Governing Council of the

Africa International University. He was voted the CEO OF THE YEAR AFRICA 2014

by the International Banker.

Rosemary Majala Githaiga,

(Mrs), Company Secretary

She has over 24 years experience as a lawyer and prior to joining Co-op Bank in 1996,

worked for Hamilton Harrison & Mathews Advocates. She is an Advocate of the High Court

of Kenya, a member of the Institute of Certied Public Secretaries CPS (K) and an Associate

Member of the Chartered Institute of Arbitrators. As the Company Secretary of the Co-op

Bank Group, she has responsibility for overall provision of legal counsel and company

secretarial services. She is also the Trust Secretary for the Co-operative Bank Foundation, the

corporate social responsibility vehicle of the bank. She is also a Director of CIC Insurance

Group Limited.

Samuel Birech

Chief Operating Ofcer

He joined the bank in 2002. Sam was appointed Chief Operating Ofcer in December 2014

and 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

is currently responsible for driving operational efciency and excellence in shared servicesto 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

international courses. He is a Board Member at Pan Africa Christian University.


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Name Prole

Maurice Matumo

Director, Retail & Business

Banking 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

strategic channel development. He holds a Bachelor of Arts degree in Business Management

from Moi University and has attended various local and international courses.

Evelyne Munyoki

Director, Human Resources

Division

She drives the banks Human Resources responsible for the People Agenda with a primary

focus on performance, talent and employee engagement. She is an experienced strategic HR

partner to the Banks Business with over 19 years experience in HR with six of those years

in the banking and nancial services sector. She is a proven professional in development and

execution of Human Capital strategy, HR Business Partnering, talent management, design

and implementation of Employee Engagement initiatives. She holds a Masters Degree in

International Business Administration (Finance Major) and a Bachelors of Arts in Land

Economics. She is a Certied Professional Career Coach and a member of the Institute of

Human Resources Management (K).

Anthony MburuDirector, Credit Management

A career banker with over 22 years of banking experience both in Kenya and the region. 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.

He is also a Director of Kenya Co-operative Coffee Exporters (KCCE) Limited.

Patrick Nyaga

Director, Finance & Strategy

Division

Has over 22 years experience mainly in auditing and banking. Previously served at KPMG

(EA), with the main focus being audit of nancial institutions and especially banks in Kenya

and the region. He then joined main-line banking where he has worked for over 13 years.

He holds an MBA from Strathmore Business School, a Bachelor of Commerce degree in

Accounting, is a Certied Public Accountant (K) and a member of ICPAK. He is also a

Director of CIC General Insurance Limited.

William Ndumia

Director, Transformation

He joined the bank in 2006. He is in Charge of the Transformation ofce giving leadership

to the various transformation initiatives and programs to achieve the banks growth and

efciency strategies. He has been in the bank for over 10 years previously as Director

IT & Innovation, Director Operations and Head Business Change management. He is an

experienced 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 isresponsible for crucial business growth in the Corporate & Institutional Banking division

providing leadership in the various business units under her. She holds a Bachelors Degree in

Commerce and an MBA from University of Nairobi and has attended various courses.

Vincent Marangu

Head, Co-operatives Banking

Division

Joined the bank in 2003 and has wide experience in business and nancial advisory working

with co-operatives