THE Eagle REIT is set to become the Victoria Falls Stock Exchange (VFEX)’s first ever REIT when it lists on the bourse today.
This stands as a key milestone to the VFEX, considering that upon the REIT’s listing, the exchange will offer investors access to three different asset classes, namely equities, bonds and REITs.
Unlike the Tigere REIT which absorbs fully-developed assets, the Eagle REIT is a development REIT whose underlying assets are currently being developed before they can earn rental income for the REIT’s unitholders.
This also implies that the REIT causes higher risk for the early investors and the REIT’s prospectus explains these risks in depth.
However, such investors will be compensated in developers profits.
The fund will issue 137,6 million units and will be managed by Fidelity Life Assurance, who will also be the anchor investor in the fund. It will have three underlying properties upon listing, with the largest and flagship assets being the mixed-use development in Victoria Falls.
Other assets comprise Mazowe Walk and recently acquired land in Chegutu.
The Victoria Falls asset measures 9,5 hectares and is currently valued at US$7,9 million. Development will require an estimated US$42,4 million in costs over a year period. Upon completion, the asset will have a medical facility, a hotel, a retail centre, offices and residential properties.
The hospitality asset, Novotel Hotel, will be managed by Novotel which currently manages over 600 hotels globally while South African-based Healthshare Solutions will run the tourism hospital.
Additional detail on retail and office tenants will likely be disclosed towards completion of the respective assets, and the residential units will be sold off-plan in phases for an expected return of 26%.
Mazowe Walk Mall
Mazowe Walk will feature several retail stores, a service station, and a medical facility on 7,514 square metres.
Redan and MedOrange are some of the well-known brands expected to take up space upon the completion of the asset’s development.
The project is expected to cost US$12,2 million and will be funded through convertible debt and equity. The fund continues to search for an anchor tenant as the project nears completion.
Forecasts
According to forecasts provided in the prospectus, the fund’s core income is expected to register a compounded annual growth rate (CAGR) of 125% between 2025 and 2029 in line with the phased development of the various projects.
Net earnings are expected to register a CAGR of 166% over the same period. Unitholders’ equity is expected to grow at a five-year CAGR of 88%.
Valuation
Typical income-based REIT valuations are in line with the book value per share because the underlying assets generate rental income that matches the investment property values.
However, development REITs valuations exhibit a gap between income-based valuations and the book value per share at the onset, and we lean on the latter until the fund’s projects are complete and start generating cash inflows from rentals.
With this in mind, we anticipate that the fund will register first trades at prices close to its financial year 2024 book value per share of US14,56c.
- This article was written by Morgan & Co, a securities firm for a new era, whose local knowledge and expertise is twinned with international experience to grow the Zimbabwean capital markets.
