Centum’s portfolio is 70% held in Real Estate!
Real estate is one of the oldest investment classes. It is favoured for several things among them market beating returns over the long term, inflation beating, cashflow generation in rent and an asset that can be used to leverage. It however has significant flaws too, for one liquidity in real estate is low, selling it is a significant challenge especially in a difficult economic climate.
With a bonus policy that required exponential returns, Centum seems to have elected to pay more attention on real estate probably because it promises faster profits and security allowing it access to debt.
The real portfolio is discussed below is important to be reviewed considering ALL real estate is carried at what Centum claims is Net Asset Value. This market value has been significantly disputed by Centum staff and former staff with the concerns not addressed by management.
The Real Estate Portfolio Make Up March 2021
Valuation KES’ Millions
Centum Real Estate
This is a holding company with interest in real estate development within the Centum Group. The entity holds investments in Uhuru Heights, Centum Development Kenya Limited, Vipingo Development Plc, Vipingo Estates Plc and Centum Development Mauritius Company Limited (that owns 100% of Pearl Marina Estates Limited. It is measured at net asset value of this the underlying assets and liabilities are measured at fair value.
Two Rivers Development Limited
This is a real estate development that holds a controlling stake in the investment in Two Rivers Mall. It is measured at net asset value of which the underlying assets and liabilities are measured at fair value.
Loans to Related Parties (Real Estate Subsidiaries)
These are investments in Real Estate related parties. While it appears as a receivable in the balance sheet, it actually is a clever investment in Real Estate while carrying it in the books as a liquid investment.
Total Real Estate Holding
Going by our analysis of the reserves held, a review of the land acreage in each company vs the valuation and previous claims of asset being overvalued, Centum has no further value upsides in its real estate portfolio.
A look at the more detailed March 2020 breakdown shows that Centum could be carrying it’s Vipingo land at an average KES 2 Million per acre!
Of additional note is that all the assets are encumbered to debt by the company and thus the shareholders can only access value after debt and interest repayments.
With an average debt rate of 12%, a depreciating shilling and property values dropping, Centum is facing a situation where it may need to forfeit all the assets held to the debt providers an still remain in debt.