Property fund Ilam Fahari I-Reit (formerly Stanlib Fahari) has sunk into a Sh123.95 million loss for the year ended December 2021, after wobbly Tuskys Supermarket defaulted on rent.
The loss — the first since the start of operations in 2015 is in contrast to the Sh148 million net profit that the fund, which is managed by ICEA Lion Asset Management, posted in a similar period in 2020.
ICEA Lion Asset Management Chief Executive Mr Einstein Kihanda said the exit of Tuskys Supermarket from Greenspan Shopping Mall, which is owned and managed by Ilam Fahari left a financial hole in the property fund.
First, Tuskys which was the anchor tenant in the mall defaulted on Sh26 million rent as it ran into liquidity challenges.
The retailer then exited the mall in December 2020, leaving Greenspan Mall, knocking down the occupancy rate for the Donholm-based mall that boasts 173,477 square foot lettable space.
“We then engaged prospective supermarkets to take over the space. We got Naivas Supermarket and the first rent came in August 2022,” explained Mr Kihanda.
“For seven months, we didn’t earn any income and we have seen that hit on rental income.”
The changeover from Tuskys to Naivas, which took less space compared to its predecessor anchor tenant, saw rental and related income fall by 18.2 per cent or Sh59 million to Sh265.67 million.
Mr Kihanda says having Naivas take less space than Tuskys meant a drop in revenue but this has helped lower concentration risk — meaning reduced reliance on a single tenant for revenue.
But Ilam will only start reaping the benefits once the remaining space of the mall is let out. The firm acquired the mall in December 2015 at Sh2.09 billion.
Tuskys used to occupy nearly half (48 per cent) of the gross lettable space at Greenspan Mall, accounting for about 40 per cent of the rental income from the establishment.
Naivas only occupies about 37 per cent of the space.
With a reduced occupancy rate to 74.2 per cent from above 85 per cent, Ilam Fahari saw a fair value loss after revaluing its investment properties.
The fall in fair value on an investment property by Sh191 million to Sh3.19 billion was also contributed by the Covid-19 disruptions which cast uncertainties on rental income.
Ilam is still chasing after Tuskys to recover the Sh26 million rent arrears but the wobbly state of affairs for the once giant retail chain could mean a longer wait for the property fund.
“The Sh26 million owed has been provided for (in the books of accounts) and we are pursuing that through a court process,” said Mr Kihanda.
Ilam’s loss saw the fund cut the distribution to shareholders for the third straight year to Sh0.50 per unit, amounting to Sh90.49 million from Sh0.60 a unit in the previous year.
The fund had consistently paid Sh0.75 per unit for three years to 2019. Only in 2016, did it pay Sh0.50 per unit for the first 13 months of operation.
Real Estate Investment Trusts (Reits) regulations require that a minimum of 80 per cent of net profit after tax, from sources other than realised gains from the disposal of real estate assets, is distributed.
While Ilam’s Bay Holdings, an office complex with two warehouses that was acquired in June 2015 for Sh216.12 million, is fully rented out, the Fund still has Signature International to deal with.
Signature International, another semi office and light industrial establishment in Industrial Area, Nairobi with a lettable space of 7,639 square feet, has been empty for about three years.
This is unlike Bay Holdings’ 33,265 square foot and 67 Gatanga — a 41,312 square foot office space that is 100 per cent rented out at the moment.
Mr Kihanda says Ilam expects an increase in demand for the warehouse as e-commerce picks up.
But before that, the space at Signature remains. “We have been working on securing tenants. It is one of the key issues we are addressing,” said Kihanda.
The property, known as Highway House is a three-storey commercial building located on Pokomo Road, off Mombasa Road was acquired in June 2016 for Sh108.72 million.