ENBD REIT eyes wider portfolio footprint in UAE, plans more green initiatives

Dubai – ENBD REIT, the real estate investment fund managed by Emirates NBD Asset Management, recently revealed that its net asset value (NAV) for the full year 2017 had reached AED 1.1 billion ($300 million).

Publicly listed on the Nasdaq Dubai stock exchange, the Islamic Shari'a compliant REIT has several expansion plans in the pipeline, including diversifying its portfolio through the different asset types, according to the fund’s leading official.

As for the geographical footprint of its portfolio, ENBD REIT’s head of real estate Anthony Taylor told Mubasher in an exclusive interview that he “would like to see 50% to 75% of the portfolio in Dubai, 10% to 20% in Abu Dhabi and up to 10% in other Emirates, subject to strong tenant covenants.”

Taylor also tackles the projected rise in US interest rates and its impact on UAE rates and subsequently on the REIT.

Below is an exclusive interview with ENBD REIT’s head of real estate Anthony Taylor on the fund’s upcoming expansions, their dividend yield for the year, upcoming interest rates.

Mubasher: Does ENBD REIT have any planned or underway acquisitions in 2018? If yes, can you tell us about them?

Anthony Taylor: Yes. As part of our investment strategy for 2018, we will focus on and explore opportunities in the alternative asset class. However, the key characteristics of any investment we look to make will be freehold ownership or long-term leasehold titles, with a transaction value of about $30 million or more.

Our focus is on high-quality properties with the aim of increasing our alternative assets holding within ENBD REIT. Post-acquisitions our target portfolio allocations would be 50% to 60% of the portfolio invested in office buildings, a slightly revised residential holding to a lower 20% to 25% allocation, and increasing the alternative assets to a higher 25% to 35%.

Our aim is to acquire assets that will lengthen average tenant lease terms through off-market, relationship driven transactions. We remain open to acquiring development assets but have a statutory limit of 30% of NAV for such properties in the portfolio.

Mubasher: ENBD REIT acquires properties in the emirate of Dubai, but does it have plans to expand its portfolio outside the emirate? If yes, would that be a short-term or long-term plan and would it be for the UAE only or GCC?

Anthony Taylor: As a UAE REIT, we remain focused on making acquisitions within the Emirates, however, we will continue to diversify our portfolio through the different asset types. With regard to our investment strategy, we have maintained a focused approach to both sectors and geographies, provided the targets meet our investment criteria of long-term and stable leases, solid income generation, and potential for capital appreciation. In time, we would like to see 50% to 75% of the portfolio in Dubai, 10% to 20% in Abu Dhabi – where we are actively seeking acquisition opportunities – and up to 10% in other Emirates, subject to strong tenant covenants.

Mubasher: It is forecast that the US Fed will hike interest rates at least twice more this year, a move often mirrored by the Central Bank of the UAE. How will this affect you as a REIT? How will it impact your full year results and operations?

Anthony Taylor: Current debt is floating so interest rate increases will have an impact on performance. However, despite increases in interest rates, the spread between property yields and interest rates remains, which makes it attractive to utilise debt to enhance income returns for shareholders. ENBD REIT’s Management is looking at other financing options, which could be on more favourable terms to mitigate the impact of increased rates.

Mubasher: In April, ENBD REIT announced a green initiative aimed at cutting energy use and cost, which of the other properties in your portfolio can the market expect to see such similar initiatives at?

Anthony Taylor: Following the success of the implementation of EP&T’s energy saving initiatives at Al Thuraya, we are now looking to roll our similar initiatives within our other office assets. Green initiatives start with ratings for assets in our current portfolio and then identifying critical areas to improve those ratings going forward. This will be a key focus for the coming year, and we have already made good progress on the same.

Mubasher: What are your projections for ENBD REIT’s dividends for the full year 2018?

Anthony Taylor: In addition to the dividend of $0.0382 per share paid to the shareholders on 12 July 2017, a further dividend payment of $3,281,777 or $0.0129 per share will be distributed to shareholders on 13 June 2018, having been approved by shareholders at the annual general meeting (AGM), which took place on 3 June. This brings the total dividend payable to shareholders for the year ending 31 March 2018 to $0.0511 per share – equivalent to 5.46% of the share price and 4.33% of the cum-dividend NAV.

Mubasher: ENBD REIT recently said that it was seeking to expand in assets in the education, healthcare, and industrial segments. How has the REIT progressed in this regard?

Anthony Taylor: We have made good progress and will continue to engage in expanding the portfolio in these fields. In the last 12 months, we completed four strategic acquisitions, whereby we entered the alternative asset class for the first time – adding Uninest (which is a student accommodation), the Souq Extra Community Retail Centre, and South View School, an under-development school which will be operational by September 2018. This has raised the value of the property portfolio from $315 million to $463 million.

Education assets are attractive to us because they carry long-term leases with a corporate guarantee, which assures income from the asset. For the operator, it can take time for a profit to be turned, and so this corporate guarantee is important for generating stable income from the outset.

We also acquired The Edge office building in Dubai Internet City, which is a prime Grade A asset. All assets are 100% occupied on long-term leases to prominent entities, providing stability to rental income and cashflows.