ENBD REIT announces intention to list on Nasdaq Dubai
ENBD REIT (CEIC) Limited (ENBD REIT), a Shari'ah compliant real estate investment trust managed by Emirates NBD Asset Management Limited (the “Fund Manager”), has announced its intention to proceed with an offer of its ordinary shares (the “Offer”) in and from the DIFC.
It is intended that ENBD REIT will apply for admission of its ordinary shares to the Official List of Securities of the Dubai Financial Services Authority (“DFSA”) and to trading on Nasdaq Dubai (“Admission”).
“We’re pleased to announce that ENBD REIT, managed by Emirates NBD Asset Management Limited, intends to admit its ordinary shares to Nasdaq Dubai for trading. This will be only the second real estate investment trust to be listed on a UAE stock exchange, and it is the opinion of ENBD REIT’s directors that the re-domiciliation and listing will allow improved liquidity and greater flexibility for the Fund Manager to manage ENBD REIT,” said Tariq Bin Hendi, Director of ENBD REIT.
The investment assets of ENBD REIT have been re-domiciled to the DIFC from the Jersey, Channel Islands open-ended real estate fund, Emirates Real Estate Fund Limited (the “Jersey Fund”), which was originally established in 2005. ENBD REIT is a real estate investment trust currently focused on the United Arab Emirates (“UAE”) and based on the performance of the Jersey Fund has demonstrated a strong eleven year track record, which included a consistent dividend payout history of between five per cent and seven per cent per annum (on an annualised basis, save for one semi-annual period in 2011 when a capital distribution was made instead of a dividend payment). The real estate assets of ENBD REIT have a total valuation of $314 million, with a net leasable area (NLA) of 872,518 square feet, as at 30 September 2016.
ENBD REIT has a diversified asset portfolio, currently comprising seven income-generating properties in Dubai (the “Portfolio”). The Portfolio is diversified across office and residential assets in strategic locations. ENBD REIT is managed by Emirates NBD Asset Management Limited, a wholly owned subsidiary of Emirates NBD PJSC.
“The improved capital structure of ENBD REIT will mean there is less of a requirement to retain cash for the purposes of managing liquidity in the event of investor withdrawals, which are not permitted in a closed-ended vehicle of this type, but were a requirement in the open-ended structure. In the long-term, this should help ENBD REIT to achieve its objective of remaining more fully invested, subject to market and other conditions, with the goal of achieving improved long-term returns for its shareholders,” said Anthony Taylor, Fund Manager, Real Estate at Emirates NBD Asset Management Limited.
ENBD REIT is a closed-ended investment company, incorporated by the Fund Manager to invest in a diversified portfolio of Shari'ah-compliant real estate in the UAE.
ENBD REIT invests in predominantly income generating real estate in the UAE. ENBD REIT’s objective is to provide investors with: (i) a regular source of income (by way of annual dividends of at least 80 per cent of its net audited annual income in accordance with DFSA regulations); and (ii) capital appreciation.
ENBD REIT has an unlimited duration and was established in the DIFC by the Fund Manager, Emirates NBD Asset Management Limited, on 18 July 2016 under the Companies Law with the name “Emirates Real Estate Fund Limited” with registration number 2209 and subsequently changed its name to “ENBD REIT (CEIC) Limited”. The investment assets of ENBD REIT have been re-domiciled to the DIFC from the Jersey Fund which was originally established in 2005. ENBD REIT is categorised under DFSA regulations as a Public Fund, Domestic Fund, Islamic Fund, Property Fund and a Real Estate Investment Trust (REIT).
ENBD REIT has been able to deliver a steady improvement in occupancy levels and consistently improve gross yields. ENBD REIT intends to raise capital from new investors by way of an offering of new shares in ENBD REIT.
It is the opinion of the directors of ENBD REIT and the Fund Manager that the re-domiciliation of the predecessor Jersey Fund to the DIFC and the Admission will allow: (i) improved liquidity outside of the previous quarterly dealing cycle of the open-ended Jersey Fund; (ii) greater flexibility for Emirates NBD Asset Management Limited, the Fund Manager, in managing ENBD REIT and (iii) a more efficient capital structure. The improved capital structure of ENBD REIT will mean there is less requirement to retain cash within ENBD REIT for the purposes of managing liquidity in the event of investor withdrawals, which are not permitted in a closed-ended vehicle of this type. In the long-term, this should help ENBD REIT to achieve its objective of remaining more fully invested (subject to market and other conditions) with the goal of achieving improved long-term returns for its shareholders.
Overview of ENBD REIT
ENBD REIT is a closed-ended investment company that was incorporated by the Fund Manager to invest in a diversified Portfolio of Shari'ah-compliant real estate assets in the UAE. ENBD REIT has an unlimited duration and was established in the DIFC by the Fund Manager on 18 July 2016 under the Companies Law with the name “Emirates Real Estate Fund Limited” and with registration number 2209. The Fund subsequently changed its name to “ENBD REIT (CEIC) Limited”. ENBD REIT is categorised under DFSA law and regulations as a Public Fund, a Domestic Fund, an Islamic Fund, a Property Fund and a Real Estate Investment Trust (REIT).
The investment assets of the Jersey Fund were transferred to ENBD REIT from the Jersey Fund between October 2016 and December 2016. The Jersey Fund was established as an open-ended investment fund in Jersey, as one of a number of sub-funds of Emirates Funds Limited an umbrella fund company. The Jersey Fund was originally established to allow the Fund Manager’s investors to participate in the UAE real estate market in a Shari'ah-compliant manner.
ENBD REIT has three directors, namely: (i) Tariq Abdulqader Ibrahim Bin Hendi; (ii) Mark Edward John Creasey; and (iii) David Jonathan Marshall. Tariq Abdulqader Ibrahim Bin Hendi is ENBD REIT’s only executive director.
The real estate Portfolio
ENBD REIT’s Portfolio currently comprises seven properties in the commercial and residential sectors, all of which are located in Dubai. As at 30 September 2016 a significant portion of ENBD REIT’s annualised rental income (comprising 58.2 per cent) was generated from three Properties: Al Thuraya Tower 1, Binghatti Terraces and Arabian Oryx House. As at 30 September 2015, 57.1 per cent of ENBD REIT’s annualised rental income was generated from the three properties: Al Thuraya Tower 1, DHCC 49 and DHCC 25.
ENBD REIT’s current Portfolio consists of the following properties:
Commercial (representing 67.3 per cent of ENBD REIT’s net asset value as at 30 September 2016)
Al Thuraya 1 (Dubai Media City)
High-rise commercial tower with views over TECOM and Palm Jumeirah.
Burj Daman (Dubai International Financial Centre)
Two and a half floors (10th, 14th and part of 15th) in the commercial portion of a building in DIFC.
DHCC 49 (Dubai Healthcare City)
A G+five-storey commercial complex located in Dubai Healthcare City free zone.
DHCC 25 (Dubai Healthcare City)
A G+six-storey commercial tower located in the Dubai Healthcare City free zone.
Residential (representing 32.7 per cent of ENBD REIT’s net asset value as at 30 September 2016)
Binghatti Terraces (Dubai Silicon Oasis)
A residential tower with 201 residential and 5 retail units, constructed by developers with an established track record.
Arabian Oryx House (Barsha Heights)
A residential tower with 128 units, mainly comprising units of 1, 2 and 4 bedroom apartments.
Remraam Residential (Dubailand)
Two residential towers offering 105 units in mainly 1 & 2 bedroom apartments. The tower is fully-leased to the hotel company Media Rotana for its staff requirements.
The Fund Manager
Emirates NBD Asset Management Limited is a company limited by shares incorporated in the DIFC, which was incorporated in the DIFC as a company limited by shares on 8 August 2006 under the Companies Law with registration number 0224. The Fund Manager is considered a prominent asset manager in the region with $3.5 billion of assets under management as at 30 September 2016, spread across actively managed in-house funds as well as discretionary portfolios. The Fund Manager is wholly owned by Emirates NBD PJSC (“Emirates NBD”), a company listed on the Dubai Financial Market (“DFM”) and is part of Emirates NBD’s group of companies, one of the largest banking groups in the MENA Region by assets with total assets of approximately $121 billion as at 30 September 2016.
The Fund Manager was granted a Category II licence by the DFSA on 10 August 2006. The licence permits the Fund Manager to undertake the financial services of: (i) advising on financial products or credit; (ii) arranging credit or deals in investments; (iii) arranging custody; (iv) dealing in investments as agent; (v) dealing in investments as principal; (vi) managing assets; (vii) providing fund administration; (viii) managing a collective investment fund; (ix) operating an Islamic window; (x) conducting Islamic financial business by operating an Islamic window, (xi) carrying on authorised financial services with or for retail clients; and (xii) holding or controlling client assets
The Fund Manager believes that ENBD REIT has the following key business strengths:
A high quality diversified Portfolio with strategic locations in Dubai
ENBD REIT currently owns or has an economic interest in four developed commercial properties and three developed residential properties in Dubai. Included in the current Portfolio are a number of high quality office properties located in prime locations in Dubai such as the Dubai Media City (TECOM) (one of the first free zones in Dubai), DIFC (a regional financial hub with a multinational tenant base including a number of well-known and reputable organisations) and DHCC (a specialised healthcare area with close proximity to a number of healthcare providers). The Fund Manager has recently shifted the focus of ENBD REIT to the areas of Dubai designated for foreign investment, with a view to exploring investments in other high yielding Emirates, such as Abu Dhabi, which have the potential for substantial capital appreciation in addition to income generation. In Dubai, the Fund Manager focuses on established free zones (such as Dubai Media City (TECOM), DIFC and DHCC) that have that have exhibited strong growth prospects.
As at 30 September 2016, and based on the market valuations of the properties as carried out by the third-party independent valuers, 67.3 per cent of the Portfolio is comprised of commercial offices while 32.7 per cent of the Portfolio is comprised of residential property.
The seven Properties currently in the Portfolio are generally diversified in terms of their type of use and their location within free zones in Dubai. The Fund Manager believes that the diversified uses of the Properties and the quality of the assets helps to reduce the impact of risks of local real estate market fluctuations. The Fund Manager believes that the individual properties and the Portfolio as a whole possess strong income profiles, as evidenced by the generally high levels of current occupancy and utilisation (with limited exceptions in respect of newer Properties) and a relatively high degree of tenant commitments with commercial properties having a weighted average unexpired lease term (WAULTs) of 2.5 years (as at 30 September 2016).
Residential properties tend to carry a lower WAULT and ENBD REIT’s residential properties carry a WAULT of 0.65 years (as at 30 September 2016). As at 30 September 2016, the total Portfolio generated a Passing Income of approximately AED 93.6 million (approximately $25.48 million) and the Portfolio generated a Passing Income Yield of 8.5 per cent (excluding cash and Islamic deposits).
The Fund Manager intends to explore further diversification of ENBD REIT’s Portfolio by potentially investing in: (i) Emirates other than Dubai including, in particular, the areas of Abu Dhabi designated for foreign investment; and (ii) real estate sectors other than office, residential and retail properties including, but not limited to, educational facilities, healthcare facilities, community retail, industrial logistics centres, data centres, infrastructure, warehouses, hospitality, storage and car parking or any other sector that the Fund Manager believes may be attractive from time to time. Increased diversification may enhance ENBD REIT’s Portfolio by providing further exposure across a range of real estate sectors with the aim of enhanced and more stable returns.
Extensive network of existing and potential tenants operating across a broad range of industries
ENBD REIT currently has a large network of relationships with existing and potential tenants in the UAE. Key tenants in ENBD REIT’s commercial portfolio represent a wide range of industries including telecoms, hospitality, and medical as well as legal, media and marketing services. Additionally, ENBD REIT currently has a strong residential tenant base, with more than 120 tenants (including individuals and corporates) across its three residential properties, representing an average occupancy rate of 96.6 per cent as at 30 September 2016.
Demonstrable performance track record, consistent dividend distribution and steady increase in NAV per share
The Jersey Fund, the predecessor to ENBD REIT, had, since its inception in 2005, largely achieved its overall investment objectives of providing its investors with: (i) a regular and stable source of income by paying semi-annually an interim dividend following the end of the relevant six-month period in June and a final dividend following the end of the relevant six-month period ending December; and (ii) long-term capital appreciation in net asset value per unit since inception.
The Jersey Fund distributed dividends per share of $0.1998 for the six-month period ended 30 June 2016 to Income Share class holders, which equates to an Annualised Dividend Yield of 5.75 per cent. The net asset value per share of the Jersey Fund increased by 4.8 per cent over the last 12-month period ended 30 September 2016, 57.5 per cent over the last five years and 32.1 per cent since inception in 2005. It should be noted that this period included the global financial crisis where significant falls in the values of real estate assets were generally seen across a number of global markets. The Fund Manager will continue to seek and ensure the stability of cash distributions and the sustainable growth in NAV per Share by adhering to its disciplined investment management strategy with the aim of preserving the existing yields on the Portfolio and enhancing the value of its properties.
Emirates NBD Asset Management – a reputable manager
The Fund Manager is considered a prominent asset manager in the region with $3.5 billion of assets under management as at 30 September 2016, spread across actively managed in-house funds as well as discretionary portfolios. The Fund Manager is part of the Emirates NBD Group which is one of the largest banking groups in the MENA Region by assets with total assets of approximately $121 billion as at 30 September 2016. Emirates NBD, the holding company of the Fund Manager, is publicly listed on the DFM and is majority-owned by the Government of Dubai (which, through the Investment Corporation of Dubai, currently owns a 55.8 per cent interest in the share capital of Emirates NBD). In addition to the Emirates NBD Group’s credibility and reputation in the local market, its broad presence in the UAE and growing focus on opportunities in the wider region has historically helped ENBD REIT benefit from: (i) wider visibility as to the relevant real estate markets; (ii) relationships with Emirates NBD Group’s banking clients which allow for the sourcing of ‘off-market’ opportunities; (iii) access to favourable financing terms; and (iv) Emirates NBD Group’s strong relationships with local regulatory bodies.
Fund Manager’s experienced and committed real estate team
The Fund Manager’s real estate team, which managed the Jersey Fund prior to the Re-Domiciliation (since July 2005), and currently manages ENBD REIT, consists of an experienced management team with extensive experience in real estate portfolio management and property investment and knowledge of acquiring, owning, managing, leasing and repositioning real estate assets. The Fund Manager is an award winning asset manager in the region with strong relationship with different service providers and has received the following awards: (i) Sector Fund of the Year (MENA Fund Manager Performance Awards 2017); (ii) Real Estate Fund of the Year (MENA Fund Manager Performance Awards 2016); (iii) Best Real Estate Fund UAE (International Finance Magazine 2015); and (iv) Best Real Estate Fund (Islamic Business & Finance Awards 2013).
The Fund Manager’s team, currently led by Tim Rose and Anthony Taylor, has experienced a number of property sector cycles in the UAE and has, accordingly, demonstrated its capabilities to ENBD REIT’s investors, property buyers and sellers, tenants and banks.
The Fund Manager proactively sources and evaluates new investment opportunities with a rigorous focus on: (i) governance; (ii) timely execution of transactions; (iii) acquisition financing and liquidity management; (iv) overall leasing management including thorough review and enhancement of existing lease contracts and tenant relations; (v) diligent property management; (vi) value enhancement of properties through refurbishment and renovation; and (vii) prudent financial oversight of rental income, property and expenses.
ENBD REIT’s investment strategy is exemplified by the management team’s successful historical track record and its historical ability to maintain a relatively diversified portfolio, consistently growing its net asset value and sustaining dividend distribution through the efficient management controls put in place in respect of the portfolio.
Experienced boards and committees
Members of ENBD REIT’s governing bodies, including members of the Fund Manager’s board and committees have a track record of local and international experience within their respective specialties that range from engineering, investment management, Shari'ah, real estate valuation, accounting and finance as well as legal and compliance.
A larger established investor base comprising institutional and high net worth individuals with a long term outlook
ENBD REIT’s top ten largest shareholders owned 68.7 per cent of the shares prior to Admission. Current shareholders (prior to Admission) are comprised of primarily institutional investors and family offices, some of whom have been with ENBD REIT (through the Jersey Fund) for years. The Jersey Fund attracted large institutional capital in the last 36 months and the investor profile has evolved from a smaller ‘semi-retail’ client base and high net worth individuals to a larger institutional investor base. The shareholder of the Fund Manager retains a position in ENBD REIT and provided initial capital to the Jersey Fund in 2005.
Focus on single ownership properties
For the most part ENBD REIT holds single/sole ownership interests in each of the Properties. This allows ENBD REIT to effectively control, in so far as applicable rules and regulations permit, the quality of each Property, its maintenance, and eventual disposal without having to cater to minority shareholders or co-owners of space in the relevant buildings. This position will likely also benefit ENBD REIT by attracting corporate tenants as ENBD REIT is able to offer large contiguous leasable areas (which, to date, have been less readily available in the areas of the UAE targeted by ENBD REIT than smaller spaces).
ENBD REIT will continue to focus on ownership of entire buildings so that it maintains its ability to attract corporate tenants on attractive commercial terms.
Leveraging its relationships, the Fund Manager has currently identified a significant pipeline of opportunities with the following characteristics: (i) they are located in the UAE (primarily Dubai or Abu Dhabi); (ii) they have a minimum value of approximately $30 million per asset; and (iii) they could potentially offer a target net yield of 7.5 per cent to nine per cent. Some of these opportunities fall within relatively high yielding sectors such as industrial and education. The pipeline opportunities that have been identified include both market and ‘off-market’ opportunities.
ENBD REIT has been established with the main investment objective of generating income returns and capital appreciation from real estate assets. ENBD REIT aims to regularly distribute a dividend with a target of achieving a return of 7.5 per cent per annum or more. The Fund Manager will manage its assets with a focus on enhancing and maintaining the value of its assets. The Fund Manager intends to increase the size of the Portfolio so that ENBD REIT can benefit from economies of scale across the Portfolio and from the reduced rates applied to the Fund Manager’s management fee as the size of ENBD REIT increases. ENBD REIT’s investment strategy is designed to take advantage of current and projected market conditions within the UAE and the wider MENA Region. The Fund Manager believes that steady economic growth in the UAE will set the stage for continued improvement in the UAE’s real estate market. It is envisioned that acquisitions and other investment opportunities will be particularly compelling due to: (i) the UAE’s economic growth; (ii) the perceived availability of debt and equity financing; and (iii) the Fund Manager’s belief that the level of supply of new investment-grade real estate assets in the UAE is limited.
ENBD REIT plans to achieve its objectives through the following strategies:
Prudent acquisitions with a focus on achieving diversification
ENBD REIT intends to acquire, own and operate properties in a wide range of sectors, including commercial and residential sectors within the UAE. This market has historically had high barriers to entry, is supply-constrained, exhibits suitable economic characteristics and has a diverse pool of prospective tenants who demand high-quality real estate. ENBD REIT seeks to acquire properties that will command sufficient rental rates and aims to maintain high occupancy levels and to capitalise on specific real estate opportunities that complement its existing Portfolio.
Active asset management and enhancement
Through active asset management, ENBD REIT seeks to increase (or maintain) occupancy levels and achieve high tenant retention to improve the rental growth and potentially increase overall yields and returns to investors. The Fund Manager intends to maintain a team to manage ENBD REIT and may, with the consent of the directors (as appropriate), outsource specialised activities to competent professional external firms as and when required. The Fund Manager may add to its current activities by conducting internal management and development functions in the future, subject to regulatory requirements and approvals.
ENBD REIT realised a rental income of $35.6 million for the 15 month period ended 31 March 2016 and $13.8 million for the six month period ended 30 September 2016.
ENBD REIT made a dividend distribution of $25.3 million for the 15 month period ended 31 March 2016 and $9.9 million for the six month period ended 30 September 2016. The Directors made a further dividend declaration of $4.3 million in January 2017.
ENBD REIT’s investment properties were $314 million as at 30 September 2016, with total assets at $426.2 million. ENBD REIT’s net asset value per share was $191.8 million adjusted as at 31 December 2016. The adjusted as at 31 December 2016 as a percentage of GAV was 37.9 per cent.
Use of proceeds
The gross proceeds to ENBD REIT of the Offer are expected to be in the range of $100 million – $ 125 million before the deduction of commissions and other fees and expenses payable by or on behalf of ENBD REIT in connection with the Offer.
The Fund Manager intends to use the balance of the Net Proceeds, to fund acquisitions of real estate assets in the UAE and improvements to existing Properties.
Leveraging its relationships, the Fund Manager has currently identified a significant pipeline of opportunities as described above.
 This figure assumes that 100% of Binghatti Terraces is leased as it current benefits from a rent guarantee that is in effect until July 2017