By Research Team, Nov 21, 2021
During the week, T-bills recorded an oversubscription, with the overall subscription rate coming in at 108.6%, up from the 69.3% recorded the previous week. The 91-day paper recorded the highest subscription rate, receiving bids worth Kshs 8.4 bn against the offered Kshs 4.0 bn, translating to a subscription rate of 209.9%, an increase from the 99.8% recorded the previous week. The increased interest in the 91-day paper is partly attributable to the paper’s higher return on a risk adjusted basis. The subscription rate for the 364-day and 182-day papers increased to 92.0% and 84.8%, from 74.3% and 52.0%, respectively, recorded the previous week. The yields on the 91-day, 182-day and 364-day papers increased by 4.4 bps, 6.4 bps and 9.2 bps, to 7.1%, 7.8% and 8.9%, respectively. The government accepted Kshs 23.2 bn of the Kshs 26.1 bn worth of bids received, translating to an acceptance rate of 89.2%.
During the week, the Energy and Petroleum Regulatory Authority (EPRA) released their monthly statement on the Maximum retail prices in Kenya effective 15th November 2021 to 14th December 2021 highlighting that the prices of Super Petrol, Diesel and Kerosene remained unchanged at Kshs 129.7, Kshs 110.6 and Kshs 103.5 respectively. Also during the week, the National Treasury gazetted the revenue and net expenditures for the first four months of FY’2021/2022, highlighting that the total revenue collected as at the end of October 2021 amounted to Kshs 598.5 bn, which equivalent to 33.7% of this financial year’s budget of Kshs 1.8 tn and is 101.1% of the prorated estimates of Kshs 591.9 bn. Additionally, the National Treasury released the Draft 2022 Budget Policy Statement, projecting a 7.7% increase in the target Excise Duty for FY’2021/2022 to Kshs 259.6 bn, from Kshs 241.0 bn as highlighted in the original budget estimates;
During the week, the equities market was on a downward trajectory, with NASI, NSE 20 and NSE 25 declining by 1.8%, 1.4% and 1.3%, respectively, taking their YTD performance to gains of 10.8%, 1.1% and 9.5% for NASI, NSE 20 and NSE 25, respectively. The equities market performance was driven by losses recorded by large cap stocks such as EABL, Safaricom and Co-operative Bank of 3.2%, 2.4% and 2.0%, respectively. The decline was however mitigated by gains recorded by banking stocks such as KCB and ABSA which gained by 3.1% and 2.9%, respectively;
During the week, the Capital Market Authority (CMA) released guidelines on share buybacks for listed companies, following the issue of proposed guidelines on share buy-backs in June 2020. Also, the Central Bank of Kenya (CBK), released the Commercial Banks’ Credit Survey Report for the quarter ended September 2021, highlighting that the banking sector’s loan book recorded an 8.5% y/y growth, with gross loans increasing to Kshs 3.2 tn in September 2021, from Kshs 2.9 tn in September 2020. Additionally, during the week, KCB Group, Cooperative Bank and Standard Chartered Bank released their Q3’2021 financial results, recording a 131.4%, 78.6% and 33.7% increase in their core earnings per share, respectively;
During the week, Hass Consult, a Real Estate Development and Consultancy firm, released the House Price Index Q3’2021, highlighting that residential properties within the Nairobi Metropolitan Area (NMA) recorded a 1.0% q/q appreciation, and a 1.1% y/y price correction. Hass Consult also released the Land Price Index Q3’2021, indicating that land prices in the Nairobi Metropolitan Area (NMA) appreciated on a q/q and y/y basis by 0.3% and 0.8%, respectively. Additionally, Knight Frank, a Real Estate Consultancy firm, released the Africa Office Market Dashboard Report Q3’2021, highlighting that major cities in Africa recorded a 49.0% q/q increase in office demand. In the infrastructure sector, Kenya Urban Roads Authority (KURA) announced the commencement of the conversion of the 32.0 Km Eastern Bypass into a dual carriage way at a cost of Kshs 12.5 bn. In the listed REIT, Fahari I-REIT declined by 2.0% to close at Kshs 6.8 per share, from Kshs 7.0 per share recorded the previous week;
In December 2020, we released the Nairobi Metropolitan Area Mixed-Use Developments (MUDs) Report-2020, which highlighted that Mixed-Use Developments (MUDs) recorded an average rental yield of 6.9%, 0.1% points higher than the respective single use Retail, Commercial Office and Residential themes with 6.8% in 2020. This week we update our report with the 2021 market research in order to determine the market performance of MUDs against the performance of the Residential, Commercial Office, and Retail sectors. In terms of performance, Mixed-Use Developments recorded an average rental yield of 7.2% in 2021, 0.7% points higher than the respective single-use themes which recorded an average rental yield of 6.5% in the similar period. Moreover, MUDs recorded a 0.3% y/y increase in the average rental yield to 7.2% in 2021, from the 6.9% realized in 2020;
Investment Updates:
Real Estate Updates:
Hospitality Updates:
Kenya’s 2022 Election Campaign Promises Tracker
Election Watch:
Kenya’s next Presidential Elections are set to be held in August 2022 and with less than a year left, we have seen the political temperatures in the country continue to rise. As such, we shall be analyzing the economic campaign promises made by the politicians and the impact these promises will have on the economy. To read more on the same, click here.
Money Markets, T-Bills Primary Auction:
During the week, T-bills recorded an oversubscription, with the overall subscription rate coming in at 108.6%, up from the 69.3% recorded the previous week. The 91-day paper recorded the highest subscription rate, receiving bids worth Kshs 8.4 bn against the offered Kshs 4.0 bn, translating to a subscription rate of 209.9%, an increase from the 99.8% recorded the previous week. The increased interest in the 91-day paper is partly attributable to the paper’s higher return on a risk adjusted basis. The subscription rate for the 364-day and 182-day papers increased to 92.0% and 84.8%, from 74.3% and 52.0%, respectively, recorded the previous week. The yields on the 91-day, 182-day and 364-day papers increased by 4.4 bps, 6.4 bps and 9.2 bps, to 7.1%, 7.8% and 8.9%, respectively. The government accepted Kshs 23.2 bn of the Kshs 26.1 bn worth of bids received, translating to an acceptance rate of 89.2%.
In the money markets, 3-month bank placements ended the week at 7.7% (based on what we have been offered by various banks), while the yield on the 91-day T-bill increased by 4.4 bps to 7.1%. The average yield of the Top 5 Money Market Funds declined by 0.1% points to 9.7%, from 9.8% recorded last week, while the yield on the Cytonn Money Market Fund remained relatively unchanged at 10.6%.
The table below shows the Money Market Fund Yields for Kenyan Fund Managers as published on 19th November:
|
Money Market Fund Yield for Fund Managers as published on 19th November 2021 |
|
Rank |
Fund Manager |
Effective Annual Rate |
1 |
Cytonn Money Market Fund |
10.57% |
2 |
Zimele Money Market Fund |
9.91% |
3 |
Nabo Africa Money Market Fund |
9.70% |
4 |
Sanlam Money Market Fund |
9.36% |
5 |
CIC Money Market Fund |
9.14% |
6 |
Co-op Money Market Fund |
8.96% |
7 |
Apollo Money Market Fund |
8.95% |
8 |
GenCapHela Imara Money Market Fund |
8.92% |
9 |
Madison Money Market Fund |
8.88% |
10 |
Dry Associates Money Market Fund |
8.61% |
11 |
British-American Money Market Fund |
8.50% |
12 |
Orient Kasha Money Market Fund |
8.40% |
13 |
NCBA Money Market Fund |
8.35% |
14 |
ICEA Lion Money Market Fund |
8.34% |
15 |
Old Mutual Money Market Fund |
7.39% |
16 |
AA Kenya Shillings Fund |
6.59% |
Source: Business Daily
Liquidity:
During the week, liquidity in the money markets tightened, with the average interbank rate increasing by 0.5% points to 5.2% from 4.7% recorded the previous week, partly attributable to tax remittances which offset Government payments. The average interbank volumes traded increased by 11.3% to Kshs 11.0 bn, from Kshs 9.9 bn recorded the previous week.
Kenya Eurobonds:
During the week, the yields on Eurobonds recorded mixed performance, with the 30-year bond issued in 2018 increasing by 0.1% points to 7.9%, from 7.8% recorded the previous week, while yields on the 12-year bond issued in 2021 declined by 0.1% to 6.4%, from 6.5% recorded the previous week. Yields on the 10-year bond issued in 2014, 10-year bond issued in 2018, 7-year bond issued in 2019 and 12-year bond issued in 2019 remained unchanged at 3.8%, 5.6%, 5.4% and 6.6%, respectively. Below is a summary of the performance:
Kenya Eurobond Performance |
||||||
|
2014 |
2018 |
2019 |
2021 |
||
Date |
10-year issue |
10-year issue |
30-year issue |
7-year issue |
12-year issue |
12-year issue |
31-Dec-20 |
3.9% |
5.2% |
7.0% |
4.9% |
5.9% |
- |
29-Oct-21 |
3.7% |
5.7% |
7.9% |
5.5% |
6.7% |
6.5% |
12-Nov-21 |
3.8% |
5.6% |
7.8% |
5.4% |
6.6% |
6.5% |
15-Nov-21 |
3.8% |
5.6% |
7.8% |
5.4% |
6.6% |
6.4% |
16-Nov-21 |
3.8% |
5.6% |
7.8% |
5.4% |
6.6% |
6.4% |
17-Nov-21 |
3.8% |
5.6% |
7.8% |
5.4% |
6.6% |
6.4% |
18-Nov-21 |
3.8% |
5.6% |
7.9% |
5.4% |
6.6% |
6.4% |
Weekly Change |
0.0% |
0.0% |
0.1% |
0.0% |
0.0% |
(0.1%) |
MTD Change |
0.1% |
(0.1%) |
0.0% |
(0.1%) |
(0.1%) |
(0.1%) |
YTD Change |
(0.1%) |
0.4% |
0.8% |
0.5% |
0.7% |
- |
Kenya Shilling:
During the week, the Kenyan shilling depreciated marginally by 0.3% against the US dollar to close the week at Kshs 112.2, from Kshs 111.8 recorded the previous week, mainly attributable to increased dollar demand from commodity and energy sector importers outweighing the supply of dollars from exporters. Key to note, these are the lowest lows that the Kenyan shilling has ever depreciated to against the dollar. On a YTD basis, the shilling has depreciated by 2.8% against the dollar, in comparison to the 7.7% depreciation recorded in 2020. We expect the shilling to remain under pressure for the remainder of 2021 as a result of:
The shilling is however expected to be supported by:
Weekly Highlights:
During the week, the Energy and Petroleum Regulatory Authority (EPRA) released their monthly statement on the maximum retail prices in Kenya effective 15th November 2021 to 14th December 2021. Notably, fuel prices remained unchanged at Kshs 129.7 per litre for Super Petrol, Kshs 110.6 per litre for Diesel and Kshs 103.5 per litre for Kerosene. Below are the key take-outs from the statement:
Global fuel prices have declined by 1.9% in the first two weeks of November 2021, but have increased by 61.4% on a YTD basis, to USD 80.8 from USD 50.2 at the end of 2020. The decline in global prices in November 2021 is attributable to reduced oil demand in Europe as a result of a spike in COVID-19 cases which has necessitated imposition of restrictions in some countries.
Going forward, we expect muted pressure on the inflation basket as fuel prices which are among the major contributors to Kenya’s headline inflation remain constant following the Fuel Subsidy program. However, we believe the stabilization under the fuel subsidy program by the National Treasury will be unsustainable should the average landed costs of fuel keep rising. The National Treasury will also have to compensate the Oil Marketing companies and suppliers whose edges were decreased by 100.0% in the most recent review putting further strain on the program's viability.
The National Treasury gazetted the revenue and net expenditures for the first four months of FY’2021/2022, ending 31st October 2021. Below is a summary of the performance:
FY'2021/2022 Budget Outturn - As at 31st October 2021 |
|||||
Amounts in Kshs billions unless stated otherwise |
|||||
Item |
12-months Original Estimates |
Actual Receipts/Release |
Percentage Achieved |
Prorated Estimates |
% achieved of prorated |
Opening Balance |
|
21.3 |
|
|
|
Tax Revenue |
1,707.4 |
548.4 |
32.1% |
569.1 |
96.4% |
Non-Tax Revenue |
68.2 |
28.9 |
42.3% |
22.7 |
127.0% |
Total Revenue |
1,775.6 |
598.5 |
33.7% |
591.9 |
101.1% |
External Loans & Grants |
379.7 |
10.8 |
2.9% |
126.6 |
8.6% |
Domestic Borrowings |
1,008.4 |
360.8 |
35.8% |
336.1 |
107.3% |
Other Domestic Financing |
29.3 |
4.2 |
14.2% |
9.8 |
42.5% |
Total Financing |
1,417.4 |
375.7 |
26.5% |
472.5 |
79.5% |
Recurrent Exchequer issues |
1,106.6 |
343.2 |
31.0% |
368.9 |
93.0% |
CFS Exchequer Issues |
1,327.2 |
369.8 |
27.9% |
442.4 |
83.6% |
Development Expenditure & Net Lending |
389.2 |
101.4 |
26.0% |
129.7 |
78.1% |
County Governments + Contingencies |
370.0 |
92.5 |
25.0% |
123.3 |
75.0% |
Total Expenditure |
3,193.0 |
906.9 |
28.4% |
1,064.3 |
85.2% |
Fiscal Deficit excluding Grants |
(1,417.4) |
(308.3) |
21.8% |
(472.5) |
65.3% |
Fiscal Deficit as a % of GDP |
8.2%* |
2.5% |
|
|
|
Total Borrowing
|
1,388.1 |
371.6 |
26.8% |
462.7 |
80.3% |
*Projected Fiscal Deficit as a % of GDP |
The key take-outs from the report include:
The strong revenue performance in the first four months of the current fiscal year is commendable and can be attributed to economic recovery from the continuous ease of COVID-19 containment measures coupled with effectiveness of the KRA in tax collection. Additionally, the implementation of the Finance Act 2021 which brought changes to the Excise Duty Tax, Income Tax as well as the Value Added Tax is set to expand the tax base and consequently enhance revenue collection.
During the week, the National Treasury released the Draft 2022 Budget Policy Statement, projecting a 7.7% increase in the target Excise Duty for FY’2021/2022 to Kshs 259.6 bn, from Kshs 241.0 bn as highlighted in the original budget estimates. The increase in the Excise duty revenue collection target follows the publishing of the Legal Notice 217 of 2021, which allowed the Kenya Revenue Authority, (KRA) to adjust the specific rates of excise duty upwards by 5.0% in line with average annual inflation rate for the FY’2020/2021. The products set to be affected by the increase are consumer goods such as Alcoholic and non-alcoholic drinks including beer and spirits, tobacco products, chocolates and motorcycles that are not locally assembled. Key to note, Petroleum products were not affected by the adjustment due to a petition lodged at the High Court in September 2021 which is still pending determination. Other key take-outs from the report include;
The increased revenue collection target to Kshs 2.4 tn for FY’2022/2023, from this fiscal year’s target of Kshs 2.1 tn was expected given expansion of the tax base following the implementation of the Finance Act 2021. The upwards adjustment for specific rates of excise duty is also expected to increase KRAs revenue collections. However, despite KRA's efforts to expand the tax base, we believe that the fiscal deficit will remain to be ever present due to the historical mismatch between revenue and expenditure.
Rates in the fixed income market have remained relatively stable due to the sufficient levels of liquidity in the money markets. The government is 26.7% ahead of its prorated borrowing target of Kshs 265.9 bn having borrowed Kshs 337.6 bn of the Kshs 658.5 bn borrowing target for the FY’2021/2022. We expect a gradual economic recovery going into FY’2021/2022 as evidenced by KRAs collection of Kshs 598.5 bn in revenues during the first four months of the current fiscal year, which is equivalent to 101.1% of the prorated revenue collection target. However, despite the projected high budget deficit of 7.5% and the lower credit rating from S&P Global to 'B' from 'B+', we believe that the monetary support from the IMF and World Bank will mean that the interest rate environment may stabilize since the government will not be desperate for cash.
Markets Performance
During the week, the equities market was on a downward trajectory, with NASI, NSE 20 and NSE 25 declining by 1.8%, 1.4% and 1.3%, respectively, taking their YTD performance to gains of 10.8%, 1.1% and 9.5% for NASI, NSE 20 and NSE 25, respectively. The equities market performance was driven by losses recorded by large cap stocks such as EABL, Safaricom and Co-operative Bank of 3.2%, 2.4% and 2.0%, respectively. The decline was however mitigated by gains recorded by banking stocks such as KCB and ABSA which gained by 3.1% and 2.9%, respectively.
During the week, equities turnover declined by 28.8% to USD 22.3 mn, from USD 31.3 mn recorded the previous week, taking the YTD turnover to USD 1.1 bn. Foreign investors remained net sellers, with a net selling position of USD 2.9 mn, from a net selling position of USD 7.6 mn recorded the previous week, taking the YTD net selling position to USD 38.9 mn.
The market is currently trading at a price to earnings ratio (P/E) of 12.8x, 1.2% below the historical average of 12.9x, and a dividend yield of 3.4%, 0.6% points below the historical average of 4.0%. This week’s P/E is the lowest it has been since August 2021. Key to note, NASI’s PEG ratio currently stands at 1.4x, an indication that the market is trading at a premium to its future earnings growth. Basically, a PEG ratio greater than 1.0x indicates the market may be overvalued while a PEG ratio less than 1.0x indicates that the market is undervalued. Excluding Safaricom, which is currently 60.7% of the market, the market is trading at a P/E ratio of 11.8x and a PEG ratio of 1.3x. The current P/E valuation of 12.8x is 66.0% above the most recent trough valuation of 7.7x experienced in the first week of August 2020. The charts below indicate the historical P/E and dividend yields of the market.
Weekly Highlight:
During the week, the Capital Market Authority (CMA) released guidelines on share buybacks for listed companies, following the issuance of proposed guidelines on share buy-backs, in June 2020, which have been in the process of revision following public participation. The guidelines are in line with Part XVI, Section 447 of the Companies Act, 2015, that introduced a share buyback option for publicly traded companies and aims to enhance investor protection, promote liquidity and ensure transparency in share buyback transactions.
Some of the key highlights of the guidelines include:
The new guidelines come after Nation Media Group (NMG) became the first listed company in the Nairobi Stock Exchange (NSE) to conduct a share buyback which ran from 28th June 2021 to 24th September 2021. As highlighted in our Cytonn Q3’2021 market review, the share buyback saw NMG acquire 17.1 mn ordinary shares out of the targeted 20.7 mn ordinary shares, representing an 82.5% success rate. In our view, the move by CMA to issue guidelines on the share buybacks is commendable, as the guidelines provide clarity on the procedures and requirements for share buybacks. We expect more listed companies to conduct buybacks in the NSE, especially for companies whose prices and valuations are at historical lows. The 10.0% limit on the share buyback price will minimize the impact on a company's balance sheet by reducing the cash or debt outlay for financing the buyback. However, the cap on share buyback price could limit companies intending to repurchase their shares at a much higher price so as to support their undervalued share price.
During the week, the Central Bank of Kenya (CBK), released the Commercial Banks’ Credit Survey Report for the quarter ended September 2021. The quarterly Credit Officer Survey is undertaken by the CBK to identify the potential drivers of credit risk in the banking sector. During the quarter, 38 operating commercial banks and 1 mortgage finance company participated in the Commercial Banks Credit Officer Survey. The report highlights that the banking sector’s loan book recorded an 8.5% y/y growth, with gross loans increasing to Kshs 3.2 tn in September 2021, from Kshs 2.9 tn in September 2020. On a q/q basis, the loan book increased by 2.5% from Kshs 3.1 tn in June 2021. Other key take-outs from the report include:
Credit risk is expected to decline due to an improved business environment following the gradual reopening of the economy on the back of the easing of COVID-19 restrictions and increased vaccination rollout. This is evidenced by the commercial banks’ reduced loan loss provisioning, as highlighted in our H1’2021 Banking report. The Kenyan Banking sector has showcased robust recovery efforts which have been boosted by an expansion in the loan book and diversification of income which has grown the banks’ bottom lines. The strong performance evidenced by the increased profits in Q3’2021 is expected to continue but may face risks such as increased cybersecurity threats emanating from the shift to digital banking. Credit risk still remains a concern given the discovery of new strains of the COVID-19 which could lead to reduced economic activity in the medium term.
Earnings Releases
During the week, KCB Group, Standard Chartered Bank and Co-operative Bank released their Q3’2021 financial results. Below is a summary of their performance;
KCB Group Q3’2021 Key Highlights |
||||||
Balance Sheet |
||||||
Balance Sheet Items |
Q3’2020 (Kshs bn) |
Q3’2021 (Kshs bn) |
y/y change |
|||
Net Loans and Advances |
577.5 |
651.8 |
12.9% |
|||
Government Securities |
236.2 |
252.4 |
6.9% |
|||
Total Assets |
972.0 |
1,122.5 |
15.5% |
|||
Customer Deposits |
772.7 |
859.1 |
11.2% |
|||
Deposits per Branch |
2.2 |
1.8 |
(18.5%) |
|||
Total Liabilities |
836.1 |
958.1 |
14.6% |
|||
Shareholders’ Funds |
135.9 |
163.0 |
19.9% |
|||
Income Statement |
||||||
Income Statement Items |
Q3’2020 (Kshs bn) |
Q3’2021 (Kshs bn) |
y/y change |
|||
Net Interest Income |
47.9 |
56.4 |
17.9% |
|||
Net non-Interest Income |
21.3 |
23.5 |
10.3% |
|||
Total Operating income |
69.1 |
79.9 |
15.6% |
|||
Loan Loss provision |
(20.0) |
(9.3) |
(53.4%) |
|||
Total Operating expenses |
(52.0) |
(44.1) |
(15.2%) |
|||
Profit before tax |
17.1 |
35.8 |
108.9% |
|||
Profit after tax |
10.9 |
25.2 |
131.4% |
|||
Core EPS |
3.4 |
7.8 |
131.4% |
|||
Key Ratios |
||||||
Income Statement Ratios |
Q3’2020 |
Q3’2021 |
% point change |
|||
Yield from interest-earning assets |
11.4% |
10.9% |
(0.5%) |
|||
Cost of funding |
2.9% |
2.6% |
(0.3%) |
|||
Net Interest Margin |
8.7% |
8.4% |
(0.3%) |
|||
Non-Performing Loans (NPL) Ratio |
15.3% |
13.7% |
(1.6%) |
|||
NPL Coverage |
58.5% |
63.4% |
4.9% |
|||
Cost to Income With LLP |
75.2% |
55.2% |
20.0% |
|||
Loan to Deposit Ratio |
74.7% |
75.9% |
1.2% |
|||
Cost to Income Without LLP |
46.3% |
43.5% |
(2.8%) |
|||
Return on average equity |
13.1% |
22.7% |
9.6% |
|||
Return on average assets |
1.9% |
3.2% |
1.3% |
|||
Equity to Assets |
14.8% |
14.3% |
(0.5%) |
|||
Capital Adequacy Ratios |
||||||
Ratios |
Q3’2020 |
Q3’2021 |
% point change |
|||
Core Capital/Total Liabilities |
17.3% |
17.0% |
(0.3%) |
|||
Minimum Statutory ratio |
8.0% |
8.0% |
0.0% |
|||
Excess |
9.3% |
9.0% |
(0.3%) |
|||
Core Capital/Total Risk Weighted Assets |
17.8% |
17.3% |
(0.5%) |
|||
Minimum Statutory ratio |
10.5% |
10.5% |
0.0% |
|||
Excess |
7.3% |
6.8% |
(0.5%) |
|||
Total Capital/Total Risk Weighted Assets |
19.6% |
20.6% |
1.0% |
|||
Minimum Statutory ratio |
14.5% |
14.5% |
0.0% |
|||
Excess |
5.1% |
6.1% |
1.0% |
Key take-outs from the earnings release include;
For a comprehensive analysis, please see our KCB Group Q3’2021 Earnings Note.
Standard Chartered Bank Q3’2021 Key Highlights |
|||
Balance Sheet |
|||
Balance Sheet items |
Q3’2020 (Kshs bn) |
Q3’2021 (Kshs bn) |
y/y change |
Government Securities |
106.2 |
99.0 |
(6.8%) |
Net Loans and Advances |
131.7 |
131.7 |
0.1% |
Total Assets |
314.4 |
330.7 |
5.2% |
Customer Deposits |
242.8 |
258.4 |
6.4% |
Deposits Per Branch |
6.7 |
7.2 |
6.4% |
Total Liabilities |
264.2 |
277.6 |
5.1% |
Shareholders’ Funds |
50.2 |
53.1 |
5.8% |
Income Statement |
|||
Income Statement Items |
Q3’2020 (Kshs bn) |
Q3’2021 (Kshs bn) |
y/y change |
Net Interest Income |
14.3 |
14.7 |
2.8% |
Net non-Interest Income |
6.3 |
7.6 |
19.1% |
Total Operating income |
20.7 |
22.3 |
7.8% |
Loan Loss provision |
2.73 |
2.68 |
(1.6%) |
Total Operating expenses |
14.1 |
13.4 |
(5.1%) |
Profit before tax |
6.6 |
8.9 |
35.5% |
Profit after tax |
4.3 |
6.4 |
46.7% |
Core EPS |
12.6 |
16.9 |
33.7% |
Key Ratios |
|||
Ratios |
Q3’2020 |
Q3’2021 |
% point change |
Yield from interest-earning assets |
8.9% |
8.0% |
(0.9%) |
Cost of funding |
2.1% |
1.5% |
(0.6%) |
Net Interest Margin |
7.0% |
6.7% |
(0.3%) |
Non-Performing Loans (NPL) Ratio |
14.8% |
15.3% |
0.5% |
NPL Coverage |
78.2% |
82.8% |
4.6% |
Cost to Income with LLP |
68.2% |
60.1% |
(8.1%) |
Loan to Deposit Ratio |
54.2% |
51.0% |
(3.2%) |
Return on Average Assets |
2.1% |
2.3% |
0.2% |
Return on Average Equity |
12.9% |
14.5% |
1.6% |
Equity to Assets |
16.2% |
16.0% |
(0.2%) |
Capital Adequacy Ratios |
|||
Ratios |
Q3’2020 |
Q3’2021 |
% point change |
Core Capital/Total Liabilities |
16.7% |
16.2% |
(0.5%) |
Minimum Statutory ratio |
8.0% |
8.0% |
0.0% |
Excess |
8.7% |
8.2% |
(0.5%) |
Core Capital/Total Risk Weighted Assets |
16.1% |
15.6% |
(0.5%) |
Minimum Statutory ratio |
10.5% |
10.5% |
0.0% |
Excess |
5.6% |
5.1% |
(0.5%) |
Total Capital/Total Risk Weighted Assets |
18.7% |
17.7% |
(1.0%) |
Minimum Statutory ratio |
14.5% |
14.5% |
0.0% |
Excess |
4.2% |
3.2% |
(1.0%) |
Key take-outs from the earnings release include;
For a comprehensive analysis, please see our SCBK Q3’2021 Earnings Note.
Co-operative Bank Q3’2021 Key Highlights |
|||
Balance Sheet |
|||
Balance Sheet Items |
Q3’2020 (Kshs bn) |
Q3’2021 (Kshs bn) |
y/y change |
Government Securities |
142.3 |
193.3 |
35.9% |
Net Loans and Advances |
284.2 |
306.3 |
7.8% |
Total Assets |
510.9 |
592.9 |
16.0% |
Customer Deposits |
375.5 |
420.4 |
12.0% |
Deposits per branch |
2.36 |
2.38 |
0.6% |
Total Liabilities |
427.3 |
497.5 |
16.4% |
Shareholders’ Funds |
82.0 |
95.0 |
15.9% |
Income Statement |
|||
Income Statement Items |
Q3’2020 (Kshs bn) |
Q3’2021 (Kshs bn) |
y/y change |
Net Interest Income |
23.6 |
28.7 |
21.3% |
Net non-Interest Income |
13.6 |
15.7 |
15.6% |
Total Operating income |
37.2 |
44.4 |
19.2% |
Loan Loss provision |
(4.0) |
(6.0) |
50.3% |
Total Operating expenses |
(23.5) |
(28.0) |
19.2% |
Profit before tax |
13.8 |
16.5 |
19.2% |
Profit after tax |
9.9 |
11.6 |
18.0% |
Core EPS |
1.4 |
1.7 |
18.0% |
Key Ratios |
|||
Income statement ratios |
Q3’2020 |
Q3’2021 |
% point change |
Yield from interest-earning assets |
10.9% |
11.5% |
0.6% |
Cost of funding |
2.2% |
2.4% |
0.2% |
Net Interest Margin |
8.0% |
8.5% |
0.5% |
Non-Performing Loans (NPL) Ratio |
13.2% |
14.6% |
1.4% |
NPL Coverage |
50.1% |
65.5% |
15.4% |
Cost to Income With LLP |
63.0% |
63.0% |
0.0% |
Loan to Deposit Ratio |
75.7% |
72.9% |
(2.8%) |
Cost to Income Without LLP |
52.2% |
49.4% |
(2.8%) |
Return on average equity |
16.5% |
14.2% |
(2.3%) |
Return on average assets |
2.8% |
2.3% |
(0.5%) |
Equity to assets |
17.0% |
16.0% |
(1.0%) |
Capital Adequacy Ratios |
Q3’2020 |
Q3’2021 |
% point change |
Core Capital/Total Liabilities |
19.0% |
18.0% |
(1.0%) |
Minimum Statutory ratio |
8.0% |
8.0% |
0.0% |
Excess |
11.0% |
10.0% |
(1.0%) |
Core Capital/Total Risk Weighted Assets |
16.3% |
15.0% |
(1.3%) |
Minimum Statutory ratio |
10.5% |
10.5% |
0.0% |
Excess |
5.8% |
4.5% |
(1.3%) |
Total Capital/Total Risk Weighted Assets |
16.8% |
16.5% |
(0.3%) |
Minimum Statutory ratio |
14.5% |
14.5% |
0.0% |
Excess |
2.3% |
2.0% |
(0.3%) |
Key take-outs from the earnings release include;
For a comprehensive analysis, please see our Co-operative Bank Q3’2021 Earnings Note.
Asset Quality
The table below is a summary of the asset quality for the companies that have released
|
Q3'2020 NPL Ratio** |
Q3'2021 NPL Ratio* |
Q3'2020 NPL Coverage** |
Q3'2021 NPL Coverage* |
% point change in NPL Ratio |
% point change in NPL Coverage |
Standard Chartered Bank Kenya |
14.8% |
15.3% |
78.2% |
82.8% |
0.5% |
4.6% |
Co-operative Bank of Kenya |
13.2% |
14.6% |
50.1% |
65.5% |
1.4% |
15.4% |
KCB |
15.3% |
13.7% |
58.5% |
63.4% |
(1.6%) |
4.9% |
Equity Group |
10.8% |
9.5% |
52.0% |
60.6% |
(1.3%) |
8.6% |
Mkt Weighted Average |
12.4% |
12.2% |
59.2% |
64.6% |
(0.2%) |
5.4% |
*Market cap weighted as at 19/11/2021 |
||||||
**Market cap weighted as at 01/12/2020 |
Key take-outs from the table include;
Summary Performance
The table below highlights the performance of the banks that have released so far, showing the performance using several metrics, and the key take-outs of the performance;
Bank |
Core EPS Growth |
Interest Income Growth |
Interest Expense Growth |
Net Interest Income Growth |
Net Interest Margin |
Non-Funded Income Growth |
NFI to Total Operating Income |
Growth in Total Fees & Commissions |
Deposit Growth |
Growth in Government Securities |
Loan to Deposit Ratio |
Loan Growth |
Return on Average Equity |
KCB |
131.4% |
16.2% |
10.8% |
17.9% |
8.4% |
10.3% |
29.4% |
1.2% |
11.2% |
6.9% |
75.9% |
12.9% |
22.7% |
Equity Group |
78.6% |
28.7% |
45.0% |
23.3% |
7.0% |
28.8% |
39.7% |
34.2% |
26.6% |
25.8% |
63.9% |
23.2% |
22.2% |
SCBK |
33.7% |
(2.5%) |
(23.3%) |
2.8% |
6.7% |
19.1% |
33.9% |
17.9% |
6.4% |
(6.8%) |
51.0% |
0.1% |
14.5% |
CO-OP |
18.0% |
21.6% |
22.4% |
21.3% |
8.5% |
15.6% |
35.4% |
9.4% |
12.0% |
35.9% |
72.9% |
7.8% |
14.2% |
Q3'21 Mkt Weighted Average* |
81.3% |
20.4% |
23.5% |
19.1% |
7.6% |
19.9% |
35.2% |
18.2% |
17.3% |
18.0% |
67.8% |
15.1% |
20.3% |
Q3'20 Mkt Weighted Average** |
(32.4%) |
10.8% |
8.2% |
11.7% |
7.0% |
2.1% |
35.9% |
(7.9%) |
23.1% |
47.4% |
65.6% |
15.0% |
13.0% |
*Market cap weighted as at 19/11/2021 |
|||||||||||||
**Market cap weighted as at 01/12/2020 |
Key takeaways from the table above include:
Universe of Coverage
Company |
Price as at 12/11/2021 |
Price as at 19/11/2021 |
w/w change |
YTD Change |
Year Open 2021 |
Target Price* |
Dividend Yield |
Upside/ Downside** |
P/TBv Multiple |
Recommendation |
I&M Group*** |
22.0 |
21.5 |
(2.3%) |
(52.2%) |
44.9 |
32.0 |
10.5% |
59.7% |
0.6x |
Buy |
Kenya Reinsurance |
2.3 |
2.3 |
(2.6%) |
(1.7%) |
2.3 |
3.3 |
8.8% |
54.9% |
0.2x |
Buy |
NCBA*** |
24.0 |
23.8 |
(0.8%) |
(10.7%) |
26.6 |
31.0 |
6.3% |
36.8% |
0.6x |
Buy |
ABSA Bank*** |
10.2 |
10.5 |
2.9% |
10.3% |
9.5 |
13.8 |
0.0% |
31.4% |
1.1x |
Buy |
Co-op Bank*** |
12.6 |
12.3 |
(2.0%) |
(2.0%) |
12.6 |
14.1 |
8.1% |
22.8% |
0.9x |
Buy |
Standard Chartered*** |
130.5 |
128.8 |
(1.3%) |
(10.9%) |
144.5 |
145.4 |
8.2% |
21.1% |
1.0x |
Buy |
KCB Group*** |
44.5 |
45.9 |
3.1% |
19.5% |
38.4 |
53.4 |
2.2% |
18.5% |
0.9x |
Accumulate |
Diamond Trust Bank*** |
58.0 |
57.0 |
(1.7%) |
(25.7%) |
76.8 |
67.3 |
0.0% |
18.1% |
0.2x |
Accumulate |
Jubilee Holdings |
340.0 |
328.0 |
(3.5%) |
18.9% |
275.8 |
371.5 |
2.7% |
16.0% |
0.6x |
Accumulate |
Britam |
7.5 |
7.2 |
(3.5%) |
3.4% |
7.0 |
8.3 |
0.0% |
15.2% |
1.2x |
Accumulate |
Equity Group*** |
52.5 |
52.0 |
(1.0%) |
43.4% |
36.3 |
57.5 |
0.0% |
10.6% |
1.3x |
Accumulate |
Stanbic Holdings |
94.0 |
91.8 |
(2.4%) |
7.9% |
85.0 |
96.6 |
4.1% |
9.4% |
0.8x |
Hold |
Sanlam |
11.5 |
11.5 |
0.0% |
(11.5%) |
13.0 |
12.1 |
0.0% |
5.3% |
1.2x |
Hold |
Liberty Holdings |
7.0 |
7.5 |
6.3% |
(3.1%) |
7.7 |
7.8 |
0.0% |
4.2% |
0.6x |
Lighten |
CIC Group |
2.4 |
2.3 |
(3.8%) |
9.0% |
2.1 |
2.0 |
0.0% |
(11.1%) |
0.8x |
Sell |
HF Group |
4.2 |
4.9 |
18.1% |
56.1% |
3.1 |
3.1 |
0.0% |
(36.7%) |
0.2x |
Sell |
Target Price as per Cytonn Analyst estimates **Upside/ (Downside) is adjusted for Dividend Yield ***For Disclosure, these are stocks in which Cytonn and/or its affiliates are invested in Key to note, I&M Holdings YTD share price change is mainly attributable to the counter trading ex-bonus issue |
We are “Neutral” on the Equities markets in the short term. With the market currently trading at a premium to its future growth (PEG Ratio at 1.4x), we believe that investors should reposition towards companies with a strong earnings growth and are trading at discounts to their intrinsic value. We expect the discovery of new COVID-19 variants coupled with slow vaccine rollout in developing economies to continue weighing down the economic outlook. On the upside, we believe that the recent relaxation of lockdown measures in the country will lead to improved investor sentiments in the economy.
During the week, Hass Consult, a Real Estate Development and Consultancy firm, released the House Price Index Q3’2021, a report highlighting the performance of Real Estate Residential properties in the Nairobi Metropolitan Area (NMA) in Q3’2021. The key take outs are as outlined below;
This report is in line with our Cytonn Q3’2021 Markets Review Report, indicating that overall y/y property prices in the Nairobi Metropolitan Area improved by 0.8%. This performance is attributable to the gradual economic recovery, supported by the return to normalcy of general economic activities thereby increasing revenues and subsequent investments in Real Estate markets.
Hass Consult, also released the Land Price Index Q3’2021, a report highlighting the performance of the Land Sector in the Nairobi Metropolitan Area in Q3’2021. Key take outs from the report are;
This report is in line with our Cytonn Q3’2021 Markets Review Report, indicating that overall land prices in the Nairobi Metropolitan Area appreciated by an average of 1.7% y/y, in Q3’2021. According to the report, land prices in the Satellite towns realized the highest capital appreciation at 4.5% as a result of availability, affordability and prospect for development. This performance reiterates the investor confidence in land as a stable investment asset class.
Additionally during the week, Knight Frank, a Real Estate Consultancy firm, released the Africa Office Market Dashboard Report- Q3’2021, a report highlighting the performance of commercial office sector in different African Cities for the Q3’2021. The key take outs from the report are as follows;
The table below indicates the summary of the 10 cities with the highest rent rates in Africa – Q3’2021;
Summary of the 10 Cities with the Highest Rent Rates in Africa – Q3’2021 |
||
Rank |
City and Country |
Asking Rents (USD) per SQM |
1. |
Lagos, Nigeria |
62.5 |
2. |
Luanda, Angola |
50.0 |
3. |
Kinshasa, Congo |
35.0 |
4. |
Cairo, Egypt |
33.0 |
5. |
Abidjan, Cote D'Ivore |
32.5 |
6. |
Accra, Ghana |
30.0 |
7. |
Malabo, Equatorial Quinea |
30.0 |
8. |
Algiers, Algeria |
28.0 |
9. |
Maputo, Mozambique |
28.0 |
10. |
Douala, Congo |
27.0 |
Source: Knight Frank Report NB: 1 USD=Kshs 112.2 as at 19/11/2021
The table below indicates the summary of the 10 cities with the lowest office rent rates in Africa – Q3’2021;
Summary of the 10 Cities with the Lowest Rent Rates in Africa – Q3’2021 |
||
Rank |
City and Country |
Asking Rents (USD) per SQM |
1. |
Harare, Zimbabwe |
7.0 |
2. |
Blantyre, Malawi |
7.0 |
3. |
Tunis, Tunisia |
9.0 |
4. |
Antananarivo, Madagascar |
11.0 |
5. |
Gaborone, Botswana |
12.0 |
6. |
Lilongwe, Malawi |
12.0 |
7. |
Nairobi, Kenya |
13.0 |
8. |
Kampala, Uganda |
14.4 |
9. |
Dar Es Salaam, Tanzania |
15.0 |
10. |
Johannesburg, South Africa |
15.0 |
Source: Knight Frank Report NB: 1 USD= Kshs 112.2 as at 19/11/2021
We expect uptake of offices to increase marginally driven by the resumption of businesses activities following the reopening the economy. However, the sector’s performance is expected to be weighed down by the current oversupply of offices in the Nairobi Metropolitan Area market at 7.3 mn SQFT as at 2021, and, the adoption of online meetings and work from home as a continuing norm in most companies.
During the week, Kenya Urban Roads Authority (KURA) announced the commencement of the conversion of the 32.0 Km Eastern Bypass into a dual carriage way at a cost of Kshs 12.5 bn. The road will be constructed by China Community Construction Company Limited and is expected to be completed by 2023. Upon completion, the road will link Mombasa Road to the Thika Superhighway through City Cabanas, Pipeline, Njiru, and Ruiru. The road is expected to:
The government continues to show a lot of commitment for infrastructure development in the country with current major pipeline projects in the Nairobi Metropolitan Area being the Nairobi Express Way which is 68.0% complete, and the Western Bypass (the Bypass will connect the towns of Kikuyu and Ruaka). The government has borrowed both internally by issuing infrastructure bonds, and externally through loans from countries such as China and Korea in order to finance FY’2021/2022 infrastructure budget at Kshs 182.5 bn, a 0.6% increase from Kshs 181.4 bn allocation for FY’2020/2021. We therefore expect these projects to be done to completion and open up more areas for investments through enhanced accessibility.
The graph below shows the budget allocation to the infrastructure sector over the last nine financial years:
Source: National Treasury
The government’s continued focus on initiation and completion of infrastructure developments is expected to support the realization of the Vision 2030 Agenda on developing quality, safe and adequate roads to make Kenya an intra-regional hub for trade in East Africa.
During the week, Fahari I-REIT declined by 2.0% to close at Kshs 6.8 per share, from Kshs 7.0 per share recorded the previous week. On a YTD basis the REIT has gained by 21.3% from the Kshs 5.6 recorded at the beginning of the year. The REIT’s closing price also represented a 65.8% Inception to Date (ITD) loss in performance, from the listing price of Kshs 20.0 per share. Additionally, latest data from NSE Unquoted Securities Platform (USP) show that the Acorn DREIT closed the week at Kshs 20.2 while the I-REIT closed at Kshs 20.6 per unit, gaining by 0.9% and 3.1%, respectively, from the Kshs 20.0 Inception price. Volumes traded for D-REIT and the I-REIT were at 5.4 mn and 12.3 mn with a turnover of Kshs 108.9 mn and Kshs 254.1 mn, respectively.
The Kenyan REIT market continues to record subdued performance, forming a mere 0.04% of the total market cap compared to the REIT Market in South Africa at 1.6% of the total market capitalization. This is due to constraining by factors such as i) lack of general knowledge about the REIT market and products, ii) high minimum investment amounts set at Kshs 5.0 mn for the D-REIT which 100x the medium income at Kshs 50,000, iii) lengthy regulatory processes discouraging promoters, and, iv) few REIT Trustees currently at 3, due to the high minimum requirements at Kshs 100.0 mn. The graph below shows Fahari I-REIT’s performance from November 2015 to November 2021:
We expect the real estate sector to be supported by i) the reopening of the economy boosting property and commercial office prices as demand improves, ii) investor confidence in land as a stable investment, and, iii) the government’s continued support for infrastructure thus boosting investments through enhanced accessibility and sustainable transportation services. However, the subdued REIT performance is expected to constrain the performance of the sector.
In December 2020, we released the Nairobi Metropolitan Area Mixed-Use Developments (MUDs) Report-2020, which highlighted that Mixed-Use Developments (MUDs) recorded an average rental yield of 6.9%, 0.1% points higher than the respective single use Retail, Commercial Office and Residential themes with 6.8% in 2020. The relatively better performance by MUDs compared to single-use developments was attributed to the prime locations mostly serving the high and growing middle income class, coupled with the concept’s convenience that incorporates working, shopping and living spaces.
This week we update our report with the 2021 market research that was conducted in 7 nodes within the Nairobi Metropolitan Area (NMA), in order to determine the market performance of MUDs against the market performance of the Residential, Commercial Office and Retail sectors. Therefore, this topical will cover the following:
Section I: Overview of Mixed-Use Developments
As a recap, a Mixed-Use Development (MUD) refers to an urban development that incorporates more than one Real Estate theme. This therefore means that a single development project will serve more than one purpose, that is, residential, commercial, retail, and, hospitality purposes, all at the same location. Due to the integration, MUDs offer benefits such as easier access to amenities and services, residential and working spaces all in one location.
Some of the factors that have been driving the growth of MUDs include;
Despite the aforementioned supporting factors, Mixed- Use Developments face various challenges such as:
Section II: Mixed-Use Developments Performance Summary in 2021
Mixed-Use Developments recorded an average rental yield of 7.2% in 2021, 0.7% points higher than the respective single use themes which recorded average rental yield of 6.5% in the similar period. The relatively better performance was mainly attributed to; i) an improved business environment, ii) strategic and prime locations of the developments with the capability to attract prospective clients, and, iii) preference by target clients due to their convenience hence improved demand and returns to investors. The retail and commercial office theme in the MUDs recorded a 1.3% and 0.2% points increase in the average rental yield to 8.4% and 7.1%, respectively in 2021, from 7.1% and 6.9% in 2020. This was mainly due to an improved business environment leading to increased demand and uptake of spaces. For the Residential theme in the MUDs, the average rental yield declined by 0.3% points to 6.0% in 2021, from 6.3% in 2020, attributed to other landlords still offering discounts in a bid to attract more tenants as well as retaining the existing ones. Additionally, the Retail, Commercial Office and Residential themes in the MUDs performed better in 2021 when compared to single Retail, Commercial Office and Residential themes which realized rental yields of 7.8%, 6.6%% and 5.2%, respectively in 2021. This was attributed to their incorporated live, work and play lifestyle thus more preferred, coupled with the adequate amenities available leading to their increased demand.
The table below shows the performance of single-use and mixed-use development themes between 2020 and 2021;
Thematic Performance of MUDs in Key Nodes 2020-2021 |
||||||
|
MUD Themes Average |
Market Performance Average |
||||
|
Rental Yield 2021 |
Rental Yield 2020 |
∆ in y/y MUD Rental yield |
Rental Yield 2021 |
Rental Yield 2020 |
∆ in y/y Market Average Rental Yield |
Retail |
8.4% |
7.1% |
1.3% |
7.8% |
7.7% |
0.1% |
Offices |
7.1% |
6.9% |
0.2% |
6.6% |
6.8% |
(0.2%) |
Residential |
6.0% |
6.3% |
(0.3%) |
5.2% |
5.8% |
(0.6%) |
Average |
7.2% |
6.9% |
0.3% |
6.5% |
6.8% |
(0.3%) |
* Market performance is calculated from nodes where sampled MUDs exist |
Source: Cytonn Research 2021
Karen was the best performing node with an average MUD rental yield of 8.7%, 1.5% points higher than the market average of 7.2% in 2021. In terms of respective performance of the MUD themes in Karen; Retail and Office themes recorded average rental yields of 8.8%, and 9.0%, respectively, 0.4%, and 1.9% points higher than the market average of 8.4%, and 7.1%, respectively. The remarkable performance was largely attributed to; i) the prime developments fetching higher rates, and, ii) the adequate amenities and infrastructure servicing the area.
Eastlands was the worst performing node with the average MUD rental yield coming in at 5.1%, 2.1% points lower than the market average of 7.2%. The respective themes i.e. Retail, commercial office and Residential sectors recorded average rental yield of 5.5%, 5.0% and 4.2%, respectively, 2.9%, 2.1% and 0.8% points lower than the market average of 8.4%, 7.1% and 6.0%, respectively. The poor performance was mainly attributed to low quality developments fetching lower rents thus affecting the overall yields, as well as inadequate amenities and infrastructure servicing the area.
The table below shows the performance of Mixed-Use Developments by node in 2021;
(All Values in Kshs Unless Stated Otherwise)
Nairobi’s Mixed-Use Developments Market Performance by Nodes 2021 |
|||||||||||||
|
Retail Performance |
Commercial Office Performance |
Residential Performance |
|
|||||||||
Location |
Price/SQFT |
Rent/SQFT |
Occup. (%) |
Rental Yield (%) |
Price/ SQFT |
Rent/SQFT |
Occup. %) |
Rental Yield (%) |
Price/ SQM |
Rent/ SQM |
Annual Uptake % |
Rental Yield % |
Average MUD yield |
Karen |
23,333 |
196 |
86.7% |
8.8% |
13,233 |
117 |
85.0% |
9.0% |
|
|
|
|
8.7% |
Westlands |
15,833 |
173 |
70.8% |
9.5% |
12,892 |
110 |
71.7% |
7.3% |
211,525 |
1,226 |
15.6% |
7.0% |
7.8% |
Kilimani |
18,500 |
162 |
79.0% |
8.3% |
13,713 |
106 |
79.0% |
6.7% |
|
|
|
|
7.4% |
Mombasa Rd |
20,000 |
185 |
70.0% |
8.4% |
13,000 |
100 |
60.0% |
5.5% |
156,079 |
853 |
13.3% |
6.6% |
7.4% |
Thika Rd |
23,750 |
215 |
82.5% |
9.2% |
13,250 |
105 |
72.5% |
6.9% |
128,545 |
612 |
17.9% |
6.1% |
7.0% |
Upper Hill |
15,485 |
130 |
62.5% |
6.4% |
12,000 |
102 |
70.0% |
7.0% |
|
|
|
|
6.8% |
Eastlands |
20,000 |
124 |
75.0% |
5.5% |
12,000 |
80 |
62.5% |
5.0% |
72,072 |
360 |
10.0% |
4.2% |
5.1% |
Average |
18,759 |
170 |
75.9% |
8.4% |
12,924 |
106 |
73.6% |
7.1% |
142,055 |
763 |
15.0% |
6.0% |
7.2% |
*The average MUDs performance is based on areas where sampled projects exist |
Source: Cytonn Research 2021
In our Mixed-Use Development analysis, we looked into the performance of the retail, commercial office and residential themes:
The average rental yield of retail spaces in Mixed-Use Developments came in at 8.4% in 2021, 0.6% points higher than single use retail developments that realized an average rental yield of 7.8%. This was mainly attributed to the higher rental rates that MUDs generated at Kshs 170 per SQFT when compared to Kshs 168 per SQFT recorded for the single-use retail spaces. Moreover, the remarkable performance for the MUDs was attributed to their higher preference and demand resulting from their convenience as one-stop centers for consumers living and working in the area.
Westlands was the best performing node with the average rental yield at 9.5%, 1.1% points higher than the market average of 8.4%. This was mainly driven by; i) the presence of high and middle income earning residents with greater purchasing power, ii) relatively higher rental rates and prices fetching higher returns, and iii) adequate amenities and infrastructure servicing the developments. Contrary to this, Eastlands was the worst performing node with an average rental yield of 5.5%, 2.9% points lower than the market average of 8.4%, as a result of the higher competition of informal retail spaces, and the low supply of quality spaces which in turn generated lower rental rates.
The table below provides a summary of the performance of retail spaces in MUDs against market performance in 2021;
Performance of Retail in MUDs versus Market Performance 2021 |
|||||||
|
MUD Performance |
Market Performance |
|
||||
Location |
Rent/SQFT |
Occupancy (%) |
Rental Yield (%) |
Rent/SQFT |
Occupancy (%) |
Rental Yield (%) |
Rental Yield Difference |
Westlands |
173 |
70.8% |
9.5% |
209 |
80.4% |
9.7% |
(0.2%) |
Thika Rd |
215 |
82.5% |
9.2% |
158 |
74.2% |
6.7% |
2.5% |
Karen |
196 |
86.7% |
8.8% |
214 |
80.8% |
9.4% |
(0.5%) |
Mombasa Rd |
185 |
70.0% |
8.4% |
136 |
70.5% |
6.0% |
2.4% |
Kilimani |
162 |
79.0% |
8.3% |
172 |
83.6% |
9.0% |
(0.7%) |
Upper Hill |
130 |
62.5% |
6.4% |
|
|
|
|
Eastlands |
124 |
75.0% |
5.5% |
135 |
72.5% |
5.9% |
(0.4%) |
Average |
170 |
75.9% |
8.4% |
168 |
77.0% |
7.8% |
0.6% |
*Market performance is calculated from nodes where sampled MUDs exist |
Cytonn Research 2021
The average rental yield for commercial office spaces in MUDs came in at 7.1%, 0.5% points higher than the market performance which realized an average rental yield of 6.6% in 2021. The performance by MUDs was largely attributed to; i) the presence of quality spaces generating higher rental rates at Kshs 105 per SQFT compared to the market’s average of Kshs 91 per SQFT, and, ii) higher prices at Kshs 12,924 per SQFT against market’s average of Kshs 12,306 per SQFT generating higher returns. In light of this, Karen was the best performing node with an average rental yield of 9.0% against the market average of 7.1% due to; i) the presence of high-end developments such as the Galleria business park and the Hub that offer higher rental rates and returns, ii) adequate infrastructure and amenities servicing the area, and, iii) prime location targeting clients who are willing to pay premiums for the spaces. Eastlands was the worst performing node with an average rental yield of 5.0% as a result of the availability of low quality office spaces generating lower rents at Kshs 80 per SQFT against the market average of Kshs 105 per SQFT.
The table below shows the performance of office spaces in MUDs against the single use themed market in 2021;
All Values in Kshs Unless Stated Otherwise
Performance of Commercial Offices in MUDs versus Market Performance 2021 |
|||||||||
|
MUD Performance |
Market Performance |
|
||||||
Location |
Price/SQFT |
Rent/SQFT |
Occupancy (%) |
Rental Yield (%) |
Price/SQFT |
Rent/SQFT |
Occupancy (%) |
Rental Yield (%) |
Rental Yield Difference |
Karen |
13,233 |
117 |
85.0% |
9.0% |
13,325 |
104 |
84.8% |
7.5% |
1.5% |
Westlands |
12,892 |
110 |
71.7% |
7.3% |
12,038 |
104 |
75.6% |
7.9% |
(0.6%) |
Upper Hill |
12,000 |
102 |
70.0% |
7.0% |
12,432 |
93 |
77.1% |
6.7% |
0.3% |
Thika Rd |
13,250 |
105 |
72.5% |
6.9% |
12,500 |
79 |
76.7% |
5.6% |
1.3% |
Kilimani |
13,713 |
106 |
79.0% |
6.7% |
12,293 |
92 |
79.8% |
7.1% |
(0.4%) |
Mombasa Rd |
13,000 |
100 |
60.0% |
5.5% |
11,250 |
71 |
61.3% |
4.7% |
0.8% |
Eastlands |
12,000 |
80 |
62.5% |
5.0% |
|
|
|
|
|
Average |
12,924 |
105 |
73.6% |
7.1% |
12,306 |
91 |
75.9% |
6.6% |
0.5% |
*Market performance is calculated from nodes where sampled MUDs exist |
Cytonn Research 2021
Residential units within MUDs recorded an average rental yield of 6.0% in 2021, 0.8% points higher than the single-use residential market rental yield of 5.2%. The better performance was largely driven by; i) availability of adequate amenities and infrastructure, and ii) relatively higher prices and rents at Kshs 142,055 per SQFT and Kshs 763 per SQFT, respectively, compared to the Kshs 88,013 and Kshs 459 per SQFT realized for the single use residential theme, respectively. Westlands was the best performing node with an average rental yield of 7.0% due to the presence of affluent developments fetching high rents and prices, and the adequate infrastructure servicing the area such as Redhill and Mwanzi roads. However, Eastlands was the worst performing node with an average rental yield of 4.2% resulting from; i) lower rental prices and rates, ii) inadequate infrastructure to service the developments, and iii) availability of low quality units fetching lower rates that affect returns as well.
The table below summarizes the performance of residential spaces in MUDs against the single themed market in 2021;
All Values in Kshs Unless Stated Otherwise
Performance of Residential Units in MUDs versus Market Performance 2021 |
|||||||||
|
MUD performance |
Market performance |
|
||||||
Location |
Price/SQM |
Rent/SQM |
Uptake % |
Rental Yield % |
Price/SQM |
Rent/SQM |
Uptake % |
Rental Yield % |
Rental Yield Difference |
Westlands |
211,525 |
1,226 |
15.6% |
7.0% |
145951 |
833 |
27.9% |
4.6% |
2.4% |
Mombasa Rd |
156,079 |
853 |
13.3% |
6.6% |
81,578 |
428 |
12.6% |
5.5% |
1.1% |
Thika Rd |
128,545 |
612 |
17.9% |
6.1% |
83153 |
413 |
15.5% |
4.8% |
1.3% |
Eastlands |
72,072 |
360 |
10.0% |
4.2% |
71,971 |
327 |
13.8% |
5.1% |
(0.9%) |
Average |
142,055 |
763 |
15% |
6.0% |
88,013 |
459 |
15.1% |
5.2% |
0.8% |
Westlands and Limuru Road recorded the highest prices and rents attributed to the affluent developments with adequate amenities and infrastructure thus fetching higher rates *The average residential performance is based on areas where sampled MUDs exist |
Cytonn Research 2021
Section III: Mixed-Use Developments Investment Opportunity and Outlook
The table below summarizes our outlook on Mixed-Use Developments (MUDs), where we look at the general performance of the key sectors that compose MUDs i.e. retail, commercial office and residential and investment opportunities that lies in the themes;
|
Mixed-Use Developments (MUDs) Outlook |
|
|
Sector |
2021 Sentiment and Outlook |
2021 Outlook |
|
Retail |
|
Neutral |
|
Office |
|
Neutral |
|
Residential |
|
Neutral |
|
Outlook |
We are NEUTRAL of the Mixed-Use Developments (MUDs) outlook supported by the impressive returns recorded at 7.2% in 2021, from 6.9% in 2020. However, their performance is expected to be weighed down by existing oversupply at 7.3 mn SQFT in the NMA office market, and oversupply in the retail market at 3.0 mn SQFT in the NMA and 1.7 mn SQFT in Kenya retail market. The investment opportunity lies in areas with relatively high returns such as Karen and Westlands which recorded an average MUD rental yield of 8.7%, and, 7.8% respectively, against the market average of 7.2%. |
Source: Cytonn Research 2021
Disclaimer: The views expressed in this publication are those of the writers where particulars are not warranted. This publication, which is in compliance with Section 2 of the Capital Markets Authority Act Cap 485A, is meant for general information only and is not a warranty, representation, advice or solicitation of any nature. Readers are advised in all circumstances to seek the advice of a registered investment advisor.