Equitativa failed to take reasonable steps to ensure that it or its employees reported relevant information to the Auditor of EREIT in breach of Rule 9.3.5(e) of the Collective Investment Rules (CIR). The DFSA also identified concerns around Equitativa’s fund valuation practices.
Christopher Calabia, CEO of DFSA, said: “Investors have the right to expect that information provided by a fund manager about the performance of the fund is accurate, complete, and not misleading and that financial statements published by a Firm fairly reflect the true state of the business. This expectation is particularly important for a publicly traded fund like Emirates REIT."
"The Enforceable Undertaking has been designed to improve Equitativa’s valuation practices and enhance monitoring of those practices going forward. We expect these measures to strengthen investor confidence in the future,” he said.
On 28 August 2018 Equitativa published EREIT’s half year financial statements for the period ending on 30 June 2018. At the time of publication, the School was in default of its rental payments and had informed Equitativa that it would no longer be operating the School in September 2018.
"In response, Equitativa filed a criminal case for dishonored cheques and decided to terminate its lease with the operator. Despite this, Equitativa did not include a provision for some or all of the approximate $2 million owed by the School and did not reduce the valuation of the asset to reflect the lack of an operator for the start of the academic year in September 2018. Rather, the school was presented as 100 percent occupied with a secure tenant with a 28-year lease in place," the statement from DFSA said.
"This meant that EREIT’s financial statements did not comply with relevant requirements under International Financial Reporting Standards (IFRS) and that EREIT’s net profit for the six months to 30 June 2018 was overstated," it said.
The 2018 half year financial statements were followed by an investor call together with a video message, and press release. The issues surrounding the school and the future of the asset were not disclosed in any of those communications.
According to DFSA, Equitativa failed to take reasonable steps to ensure that it or its employees reported to EREIT’s auditor all relevant information for the auditor’s review of the half year financial statements, including Equitativa’s plan to terminate the lease with the operator imminently.
On 30 April 2019, Equitativa published the annual financial statements for EREIT for 2018. In those, Equitativa did include a full provision for the USD 2 million owed by the School and an impairment for the asset.
The penalty was reduced by 30 percent as Equitativa accepted the DFSA’s settlement offer. Were it not for the settlement discount, the fine would have been $300,000, the Dubai regulator said.
The DFSA has closed its investigations into Equitativa.
(Writing by Seban Scaria; editing by Daniel Luiz)
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