Regional insurer Old Mutual Holdings Plc targets to sell off its entire portfolio of properties across East Africa as it exits the struggling real estate market.
The planned sale of buildings, which include the iconic 31-storey Old Mutual Tower in Nairobi’s Upper Hill area, aligns with the underwriter’s plan to restructure its business for growth, which also includes its exit from South Sudan.
The firm has lamented shaky returns from the portfolio as increase in the value assets remains weak and real estate yields remain in single-digit territory.
Old Mutual Chief Executive Officer Arthur Oginga says the firm has stepped up its search for buyers of its properties, which are mostly located in Nairobi, and that it will consider disposing of the entire portfolio.
“We have sales agreements for two properties in Kenya. The government of Rwanda has also paid us a deposit on a property, while in Uganda we are at the valuation stages, and in South Sudan we have had some offers,” he said. “We will be selling the Old Mutual Tower as a standalone unit and are currently in negotiations. If we get offers for all our properties, of course, we will sell them.”
Old Mutual's investment properties were valued at Sh19.4 billion at the end of last year, a sum lower than the previously reported Sh21.2 billion, with the Upperhill office tower carrying the highest valuation at Sh5.5 billion.
The Group’s other key properties in Nairobi include Equity Centre, Telkom Place, Union House, NCBA Annex, and Kimathi House.
The regional underwriter has three properties in Uganda: a plot of land, Nakawa House, and the Nakawa Business Park, which is valued at Sh4.3 billion. South Sudan properties include a plot, Juba Apartments, and the Equatoria Tower.
Old Mutual has a single property in Rwanda, which entails land valued at Sh258.8 million.
Mr Oginga says the firm has struggled to make substantive returns from its property portfolio as the real estate market marks a downturn, which has stalled both capital gains and rental appreciation.
“The problem is that the way you look at property is that it is a mix between rental yields and capital appreciation for purposes of determining whether it is a credible investment or not,” he added. “Yields never quite match market interest rates. Capital appreciation over the last 10 years has not been much, hence we have quite flat valuations. That’s the challenge until the market turns.”
Old Mutual registered a near total profit wipeout as net earnings fell by 99 percent to Sh5 million from Sh327 million from lower interest income, fair value losses, and lower written insurance premiums.
Lower insurance revenues had an impact of Sh57 million, while the life business in Kenya was hit by a higher loss ratio.
The underwriter has also highlighted lower income from equities and higher finance costs due to the refinancing of a loan in Uganda properties.
Old Mutual previously considered amalgamating all its investment properties into a single real estate investment trust (REIT) to manage its exposure in real estate. A REIT is a regulated collective investment vehicle that enables persons to contribute money’s worth as consideration for the acquisition of rights or interests in a trust that is divided into units with the intention of earning profits or income from real estate as beneficiaries of the trust.
