Union Homes Real Estate Trust (UH REITs) has provided their official rental yield data for their real estate properties located in Lagos and Abuja. This was contained in a corporate action posted on the website of the Nigerian Stock Exchange.
The report indicates Real Estate Rental Yields of between 3% and 8% respectively for the month ended May 2018 (data is published monthly by the company). Union Homes listed properties in 13 locations with 10 located in Lagos and 3 in Abuja respectively.
Real Estate rental yields are calculated by dividing the current rental income per annum of a property divided by the market value of the same property. Rental yields are a good indicator of property values and it is frequently used around the world as a proxy for determining property values.
What we learnt from the data
According to the data, Union Homes REIT has a total property net asset value of about N12.8 billion with a combined delinquency rate of just 0.75%. The report also detailed occupancy rates for high brow areas like Victoria Island, Ikoyi and Apo Abuja. The age of the properties ranges from one year to seven years.
It’s Locke Apartment property in Lekki Lagos which has 15 units has the highest rental yield of about 8% per annum with an occupancy rate of 80%. This is not surprising considering that the property is just a year old. Typically, rental yields reduce as the property ages. This is because property values in Lagos rise over time and more often than not rise faster than rental income. The lower the rental yield the higher the property value and vice versa.
Interestingly, one of the oldest properties at 7 years of age is located on Ikorodu road in mainland Lagos, a busy stretch of the expressway that is mostly dominated by commercial buildings. The company reveals the 153 Ikorodu Road property covers a land area of 3,075sqm and attracts a rental yield of about 7%.
The report also reveals that its residential properties located in Lagos produced the lowest rental yields. The properties are aged between 5 and 7 years with a significant number of units. This perhaps reflects the rising value of properties in high brow areas of Lagos, particularly Ikoyi and Lekki. In fact, the Ikoyi Properties had a rental yield of mostly 3%.
As indicated above, the company listed only 3 properties in Abuja with one in high brow Apo in Abuja. The Apo property just like we see in Ikoyi had a rental yield of about 4%. Rental Income in Abuja is significantly higher than in Lagos.
Why this matters
Real Estate Investment Trusts make money mostly from rental income and sale of properties (they also make money from interest on deposits). About 95% of their income is supposed to be distributed considering in line with their tax status. Income from REITs is not taxed.
Union Homes REITs booked a rental income of about N150 million for the period ended September 2017 and N81.9 million for the first quarter of 2018. They are yet to publish rental income for the year ended December 2017.
Investors looking for real returns (higher than inflation) may look beyond REITs or at least Union Homes REITs. For example, UH REITs has posted a return on average equity of not more than 5 %.
About Union Homes REITs
Union Homes Real Estate Investment Trust is a Fund incorporated under the laws of Nigeria and commenced business on February 3rd, 2009. The Fund is a hybrid REIT which provides Unit Holders access to investments in approved portfolio. It is governed by a Trust Deed approved by the Securities and Exchange Commission.
UH REIT is a close-ended Fund primarily involved in acquiring investment properties which are held for capital appreciation. Th Fund’s activities are managed by SFS Capital Nigeria Limited situated at Plot 287 Ajose, Adeogun Street, Victoria Island, Lagos. United Capital Trustees Limited are the Trustees to the Fund.