INTERVIEW: ENBD REIT mulls investing $100mln in development projects

The REIT made its first investment into a development project in August

View of Dubai downtown, United Arab Emirates. Image used for illustrative purpose.

View of Dubai downtown, United Arab Emirates. Image used for illustrative purpose.

ENBD REIT Limited, a Nasdaq Dubai-listed Shari'a compliant real estate investment trust, is looking to invest around $100 million in development projects to expand its ‘alternative assets’ portfolio in the UAE.

The DIFC-based investment firm that raised $105 million through an IPO on Nasdaq Dubai in March currently has a net asset value (NAV) of $292 million, of which 30 percent can been invested in the development of assets,  as per the REIT regulations.

“This means ENBD REIT could invest up to approximately $100 million for development of projects,” said Anthony Taylor, fund manager at Emirates NBD Asset Management, which manages the REIT.  

ENBD REIT has so far invested only 5 percent of its equity in development of assets.

“Should we raise additional capital in the future, we could allocate up to 30 percent of that to development,” he told Thomson Reuters Projects. 

The company has already made its first investment into a development project in August when it signed a $15 million (55 million UAE dirhams) deal to fund construction of South View School in Dubai's Remraam Community.

To be operational by September 2018, the project will offer an initial rental yield of 9 percent on project costs, with a fixed escalation of 4 percent every two years throughout the lease term of nine years, which has a further option to renew.

The South View School, which will be operated by Interstar Education, has also agreed to pay additional rent during the construction period, equivalent to 5 percent on drawdown.

Without divulging more details of any other projects that they are currently evaluating for investment, Taylor said they are “continually exploring development opportunities”.

He further added that they are also open to consider joint ventures with “the right partners in cases where 100 percent exposure to a single development asset would exceed the above restrictions”.    

While entering into an under construction project, Taylor pointed out that it generally comes on board when all design and authority approvals are in place, and contractors have been appointed. 

“As a real estate investment trust, which focuses on income producing assets, our preference is to get into development assets as late as possible. So our focus is on projects with a relatively short development period, under two years, and ideally for entities who are able to pay some rental return during the construction process,” he explained.  

However, given that ENBD REIT is a Shari’a-compliant firm, it has to check the compliance of project’s final activity with Shari’a before investing.

“Hospitality and retail serving alcohol and office developments that will accommodate conventional banks or insurance companies are examples of non-Shari’a activities, which we would not be able to invest into,” clarified Taylor.

Alternative assets

On the development front, ENBD REIT wants to target ‘alternative assets’ which, according to Taylor, are classified as build-to-suit opportunities, that are 100 percent occupied on a long-term lease (10yrs+) to a reputable operator before development commences.

“In the current market we see a number of these opportunities in the industrial, healthcare, education, and hospitality sectors. We would, however, also consider further office, residential and student accommodation, provided they are pre-let on long-term leases,” he said.

In May, the company acquired its first alternative asset, Uninest Dubailand student accommodation building, for $33 million (120 million dirhams).

With its second acquisition of South View School, which, according to Taylor, indicates there is considerable appetite for future investment into this asset class, ENBD REIT’s current allocation to alternative assets stands at 13 percent.

Expansion plan

As part of its future plan, ENDB REIT looks to grow and diversify across locations and real estate sectors. “We are currently a $367 million property portfolio and would aim to grow this to $1 billion in the coming years,” Taylor said.

With an existing portfolio of eight properties, of which around 70 percent is spread across the residential and office sectors, the REIT is planning to increase the share of alternative assets from its current 13 percent to 30 percent in the long run.

However, ENBD REIT’s long term goal is to achieve a strategic allocation of 50-60 percent offices, 20-30 percent residential and 20-30 percent alternative assets, with long term leases.

While all assets currently held in its portfolio are located in Dubai, Taylor said that its strategy would be to expand into other Emirates.

“Abu Dhabi is the focus to diversify into other Emirates as well as a few, asset-specific opportunities in some of the other northern Emirates. In the long-run, we would expect to be over 50 percent Dubai, 20-30 percent Abu Dhabi, with the balance in other Emirates,” he said.

But he acknowledged that this target portfolio allocation will take some time to achieve as real estate assets are typically large in value.

“ENBD REIT’s strategic allocation may change as we monitor the market cycles of each real estate sector and the respective Emirat

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© ZAWYA 2017

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