In his 2023 National Budget, Finance Minister, Mthuli Ncube announced that the only types of investments to be allowed under the real estate investment trust, (REIT) were shopping malls, halls of residence for tertiary institutions and hotels. He has since changed course, scrapping the limit to property types that can be listed under a REIT in a bid to diversify the new investment avenue.

“Those of you who listened carefully when I was reading the budget speech last week, if you read the thick document I must say, I mentioned something about REITs,” Ncube said at the official listing of the Tigere REIT.

“I mentioned the types of properties REITs will invest in and so forth. Look, I have just scrapped that list because we want the industry to grow, let it boom, to develop our cities, our working environment and we need all that property development,” he further articulated.

There have been five new investment avenues listed this year, including the Tigere REIT. Cass Saddle Agriculture Exchange Traded Fund, Datvest Modified Consumer Staples Exchange Traded Fund, Morgan & Co Made in Zimbabwe Exchange Traded Fund, and Morgan & Co Multi-Sector Exchange Traded Fund Trust were all listed this year, further expanding the scope of investments in Zimbabwe.

SecZim Chief Executive Anymore Taruvinga echoed this sentiment, stating, “I am happy to say that this year, from a commission perspective, we have witnessed a steady growth on collective investment schemes having registered five new players to date and this brings the total number of collective schemes to 69 with funds under management, excluding what the REIT has raised, to currently $55,6 billion,”.

Unpacking the Tigere REIT

On the 30th of November, the Tigere REIT was listed on the Zimbabwe Stock Exchange, after the initial offer put out last month garnered tremendous support from investors. The offer announced on October 28 and closed on November 25, received 243 647 792 subscriptions out of 255 323 000 units on offer, translating to about 95, 427%.

The Tigere REIT commenced trading on the Zimbabwe Stock Exchange on Thursday, December 1, 2022.

“The REIT manager would like to thank the investing public for its tremendous support of the Tigere REIT IPO and we are excited to share in this profitable journey with you,” Tigere REIT management company, Terrace Africa Asset Management, said in a statement.

The Tigere REIT is listed on the local bourse under the symbol TIGZ and is expected to provide investors with an opportunity to own a stake in a high-quality commercial property through a highly regulated financial structure. The REIT, with a net asset value of US$22,2 million, will distribute 80% of earnings to shareholders in foreign currency.

The rationale for REITs in Zim

The property sector in Zimbabwe, particularly on the ZSE has been in a state of mutability. Over the last five years, we have seen the delisting of Zimre Property Investments and Dawn Properties Limited. The former was assimilated into its parent company, Zimre Holding Limited, while the latter also went private, shunning the bourse. Consequently, there are only two property companies listed on the ZSE, namely Mashonaland Holdings and First Mutual Properties. Both companies have a vested stake in commercial and office real estate and to a certain extent, residential property.

Against this background, the introduction of REITs in the country is crucial for the capital market. The Zim capital market lacks the funding mechanism for the issuance of debt securities, restricting investors to equities, government-issued debt, direct real estate, and exchange-traded funds. Even though the stock exchange has been around since 1894, it still lacks depth, both in scope and scale.

It is our view that REITs will be crucial on two primary levels. As stated already, the Zimbabwean capital markets need depth in terms of scope as investible assets are limited to stocks and government-issued fixed-income securities. Secondly, Zimbabwe has a gigantic housing crisis with over two million citizens without access to affordable housing. The number could be much higher. The government estimates that the backlog of the housing stock of anywhere between 1.5 to 2 million housing units. Further, because of the stagnancy of the property sector, there are limited high-quality properties, buoyed by the lack of competition.

The introduction of REITs to the investment landscape should equally address these issues, ensuring that once these investment vehicles are unlocked to provide the funding needed to develop more housing units to meet the current backlog. However, REITs offer a way for investors to benefit from some of the more stable aspects of the real estate market, even while its trajectory is largely unpredictable.

 Will REITs work in Zimbabwe?

REITs are something of a hybrid. They trade like stocks, but their dividend yields can approach those of junk bonds, which carry a higher risk of default than other bonds, but they pay higher returns, making them attractive to investors.

In a thriving real estate sector, REITs belong in every diversified portfolio but it is not so simple in Zimbabwe, mainly because of the challenging macroeconomic landscape and the lack of a conducive real estate sector.

REITs provide stock market–like returns, but they usually don’t move in sync with the market. Thus, holding REITs can add stability to a portfolio without reducing returns. Better yet, REITs are a good hedge against inflation because rents and real estate values tend to climb with rising prices. But REITs are different from regular companies, making them trickier to analyse. REITs invest in real estate or loans on real estate and by owning properties, they generate most of their income from rents.

So, should you invest in a REIT?

To be sure you’re buying a REIT at a good price, compare its share price to its funds from operations, or FFO. FFO is calculated by adding back depreciation deductions to earnings. Unlike, say, computers, real estate tends to gain, rather than lose, value over time.

You can also compare a REIT’s share price to its net asset value (NAV)—that is, the value of all of the properties it owns. Assuming that the assets are valued accurately, buying at a discount to NAV means you’re getting a bargain.

Tigere REIT dividend model

Cost of capital= 8% per annum

Price Per share= Dividend/ (cost of capital-growth)

Dividend = US$1,712,291 x 80% payout

                = US$1,369,832.8

US$1,369,832 X 0.80 WHT= US$1,095,866.24

Net dividend= US$1,095,866.24

Net dividend per share= Net dividend/no of shares issued out

                                     =US$1,095,866.24/ 719,323,000

                                     = 0.001523468928423

Then discount by the cost of capital= 0.001523468928423/0.08

                                                         = 0.0190433616052872

Fair price based on model= 0.0190433616052872*800 (exchange rate)

                                           = ZW$15.23

Offer price = ZW$28    

Dividend price= ZW$15.23

Therefore, the premium= 83%.