Affordable funding model for retail business underway as TSL floats N20bn REIT

Worried about rising interest rates on bank loan which has been the only source of funding for retail mall development in Nigeria, authorities of Top Services Limited (TSL) have come up with a N20 billion Real Estate Investment Trust (REIT) which they consider relatively affordable to developers and retailers.

This development, considered a big boost to retail business by close market watchers,has First Ally Asset Management Limited as coordinator/ fund manager and one of the issuing houses.

It is a 20 million-unit instrument that will open for subscription from February 1, 2017 at N1,000 per unit.

TSL, which is sponsoring properties for the REIT, is a property development company with specialty in retail and hospitality real estate across Nigeria. It has a 20-year track record in the hospitality and retail space and started out as a developer and contractor for UAC Plc during the build out of Mr.Biggs restaurant locations throughout the country.

TSL-REIT, as it is called, is based, among others, on the four retail malls TSL has sponsored including Adeniran Ogunsanya Mall, Surulere, Apapa Mall, Apapa, Cocoa Mall, Dugbe, Ibadan, Oyo State and Akure Mall, Akure, Ondo State, and prospective investors are assured that 97 percent of net income on the malls would be distributed to them at the end of each year, as well as capital distribution.

This is based on the assumption of a maximum occupancy rate of 95 percent, which would be achieved by the end of 2018. Currently, the average occupancy rate across the malls is 90 percent and it is further assured that the REIT’s excess capital will be invested in upgrading existing facilities, government securities and real estate related investments to enhance the yield of the fund.

At a completion board meeting during which relevant documents were signed by representatives of TSL and First Ally, Tokunbo Omisore, TSL’s chairman, explained that this move became necessary as a response to high interest rate on bank loan which has been the major source of funding for retail.

In an interview with BusinessDay on the sideline of the signing event, Omisore highlighted the challenges faced by retail business in the country as well as the opportunities it offers as a growth driver in any economy.

“Retail business is an integral part of our growth. Even in the US, it is an important part of their economy and creates opportunities for business and employment. The gross lettable area in each of our malls is creating jobs directly and indirectly for over 1,200 people. Shoprite alone gives employment to over 340 people. The cinema creates a few jobs and our local retailers are trying to grow”, he said.

The reason TSL is going into REIT, he explained, is because unlike their South African competitors, Nigerians have wrong funding. “The South Africans come in with huge funding running into 40, 60, 80 million dollars. These funds are given to them at 4-5 percent interest rate for 10-15 years”, he added.

“Here, if we operate on dollar rate, it is 10-12 percent; if it is on naira rate, before now, it was 20-25 percent. Now, it is 29, 31 or 32 percent. How can we grow with this?” he queried.

Omisore advised the government to see mall development as an infrastructural development. He explained that a shop that sits on 10, 000 to 12,000 square metres is no longer a shop but an industry as it bakes, has an abattoir and a cinema all of which create opportunities beyond here and now.

“What we need to do therefore,is to make such an industry affordable. We need to put in a structure that will accommodate even a graduate that has gone into SME. We see ourselves as spoilers in the market because we are the only malls that have Shoprite as anchor tenant and yet the rent goes as low as $150 per square metre as against the South African malls that go for between $700 and $900 per square metre”, he said.

Their reason for doing that, he explained, was because “we know the challenges of the communities in which the malls are located. They don’t have money. We also know that the malls have one of the biggest problems and that is energy which is very unpredictable and takes about 60 percent of the service charge. These are extra costs to a local retailer who does not really understand the difference between service charge and rent”