UPDC Real Estate Investment Trust (UPDC REIT) profit after tax dropped 49 per cent to N1.1 billion in 2016 from N1.61 billion the previous year, denting the income prospects that were presented at the time of the initial public offer of the REIT.
“The performance of the UPDC REIT was affected negatively by the challenging macroeconomic environment as VMP 1, which was occupied by Mobil Nigeria Limited until October 2015, is currently vacant and not generating income,” said UPDC REIT fund manager’s report for December 2016.
UPDC REIT is the largest Nigerian real estate mutual fund by far, controlling 67.99 per cent of the country’s N46.05 billion real estate funds industry. It invests at least 75% of its assets directly in quality real estate (land and/or properties) in strategic locations across Nigeria.
Economic recession which hit Africa’s biggest recession for the first time in a quarter of a century hit the country’s real estate market, raising vacancy rates and crashing rental income.
According to the REIT fund manager’s report, there is currently an oversupply of grade A office space. In order to attract tenants, Landlords had to reduce rental rates.
The REIT’s operating expenses climbed 17 per cent 331.94 million, driven by increased periodic maintenance cost. Access to FX on the interbank market and the continuous depreciation of the Naira on the parallel market had resulted in higher costs for retailers looking to fit out and restock their stores within the year.
The real estate fund’s profit was also crushed by a decline in the fair value of its investment property, which lost N204.64 million in the year compared to a gain of N385.20 million in 2015.
Net gain on financial assets held for trading crashed by 209 per cent to settle in the negative territory. The REIT lost N98.17 million trading financial assets in 2016 as against N90 million it gained the previous year.
The UPDC REIT 2016 financial statement, which was made available to the Nigerian Stock exchange, showed that cash generated by the real estate fund manager from normal operations shrunk 86.69 per cent to N528.23 million versus N3.97 billion the previous year.
Cash and cash equivalent dropped 47 per cent to N1.47 billion compared to 2015 as average current yield on investment properties 6.30 per cent.
UPDC REIT posted a year-to-date return of 6.49 per cent as at June 15, 2017, according to data from Bloomberg.