sparkly wrote:I hope this land business will not turn out as a misadventure like the Uchumi expansion... Its the same management (Directors) we are dealing with here.
My feeling is that the company should have made a capital call/ rights issue, obtained a loan or issued a bond for the land project.
I don't think that it is wise for them to withdraw capital from other business lines that have served the shareholders well over the years, to invest in the land.
I would doubt it is a misadventure. Centum now has three business lines, which are Private equity, Quoted equity and Real Estate & Infrastructure. The real estate one (where the land purchase/home construction business lies)is actually is the most profitable of these. With gross returns of 23.0% in the half-year to 2012, compared to 2.1% in unquoted investments and a negative 6.1% in stocks, it’s really helping them cushion their losses in the stock market.
However, your feeling is right. Out of these three segments, Real Estate & Infrastructure is the only one which is financed by borrowing, to a tune of what seems to me as almost KES 2 Billion by the end of FY 2011 (see Segment Information in their half-year to 2012 financials)
By investing in this field, Centum also stands a chance to save on tax through real estate investment trusts (REITS). Finance Act 2011 amendments seek to have income that has been generated by REITS and distributed to unit holders exempt from income tax (presently 30%).
In all, I think it is a wise move.
Read more about incentives on REITS:
http://www.the-star.co.k...to-spur-housing-market-