Acorn seeks funds from existing shareholders in ratings downgrade

Student accommodations property developer Acorn wants to target existing unit holders of its development Reit to raise Kes1.5 billion by January 2024 for expansion of its hostel portfolio.

The company is looking internally after Moody’s downgraded its creditworthiness to negative, even as ASA REITs, recorded a profit drop to Kes283 million from Kes297 million the entity announced in six months to June 2022.

As financing conditions become tough, corporates such as Acorn will increasingly rely on shareholders and current investors, who understand the business to keep funding growth rather than targeting the wider market that has become risk averse.

In the review period, the firm posted 80 percent year-on-year increase in rights subscriptions by existing investors during the supplementary offers for both REITs in Q2 2023.

Acorn’s student accommodation model has been very successful in putting up properties such as Qwetu Hurlingham; Qwetu Aberdare Heights II, and Qwetu and Qejani Karen.

By offering affordable rental fee ranging from Kes9,900 to Kes14,500 per month, the units have been able to attract faster room occupancy and stronger rental income growth.

Rental revenue has demonstrated a positive growth trajectory, rising from Kes139 million to Kes162 million for the 6-month period ending in June this year.

“The issuer’s ratings were affected by factors such as the progress in constructing its PBSA portfolio, quicker-than-expected room occupancy growth, the successful sale of two as-sets leading to deleveraging, and evidence supporting loan-to-value ratios below the 75 per cent covenant in the financing documentation,” Moody’s ratings agency said.

Read also: Housing levy, higher fuel costs to hit Kenyans starting July 1st

Acorn’s Qejani brand

The company is seeking Kes1.5 billion to acquire additional land parcels and meet project costs.

Acorn is in the process of constructing two properties in Chiromo and near Kenyatta University under the Qwetu brand and four properties at Chiromo, Kenyatta University, Jomo Kenyatta University of Agriculture and Technology (JKUAT) and Hurlingham under the Qejani brand.

Acorn, which rolled out purpose-built student accommodation properties, has surpassed expectations and gone on to become the first company in the country to take up a green bond for expanding its portfolio of student accommodations. Student housing has gained traction in Kenya in recent years with attractive returns a captive market.

According to the Ministry of Education, available student housing in Kenya stands at 300,000 against a university enrolment of 520,900 as at 2018, excluding technical colleges. The majority of available private student housing stock lacks in quality and amenities that are expected of student accommodation.

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