Emirates REIT sees strong rental growth in FY 2016
Shari'ah compliant Real Estate Investment Trust, Emirates REIT saw rental income in Q42016 increase 25 per cent to $13.0 million (Q42015: $10.4 million).
Overall, for the year ended 31 December 2016 rental income increased 22.8 per cent to $45.3 million (FY2015: $36.9 million). Total property income for the year increased 22.2 per cent to $50.7 million (FY2015: $41.5 million).
The increase in rental income was principally attributable to increased leasing at Index Tower, and the rent of the new British Columbia Canadian School. At the year-end, total occupancy across the portfolio reached 81 per cent and the weighted average lease expiry of the total portfolio was stable at 8.5 years. The strong underlying performance over 2016 saw FFO (funds from operations), or cash profit, increase to $11.3 million (a year-on-year increase of 37.6 per cent).
Further revaluation gains at a slower growth rate Revaluation gains over 2016 were $36.5 million (FY2015: $53.3 million) and reflect an increase in contracted cash flow. They include post completion gains on Jebel Ali School and gains following the leasing of commercial floors at Index Tower. The slowdown in revaluation gains reflects the maturing of the portfolio over time and the slowdown in the broader commercial real estate sector.
Increase in portfolio valuation and net asset value
As at 31 December 2016, the total portfolio value was $752.7 million, a year-over-year increase of 12 per cent (31.12.15: $673.2 million). The net asset value was $1.65 per share, or $493 million, a five per cent increase after the dividend distributions of $4 cents in both January and June 2016. Total return for the full year 2016 was 10.18 per cent.
Strong operational achievement during 2016
In 2016, Emirates REIT completed the construction of the new Jebel Ali School campus, both on time and within the budget. The property, located in the Akoya development in Dubailand, saw an 18.3 per cent post completion valuation gain of $12.8 million. Following a similar model, the REIT launched another school development with the British Columbia Canadian School. The REIT acquired a leasehold plot in Dubai Investments Park and immediately leased it back to the school. Development started in September and the overall investment is estimated to be AED 88 million ($24 million). The estimated IRR on this project is expected to exceed 12 per cent. During the latter part of 2016, the REIT Manager made progress in negotiating pre-leases on over 50 per cent of the retail podium gross floor area at Index Tower. This includes competitive negotiations with anchor tenants. The remodelling and fit-out of the retail space is expected to start in Q2. The Asset Management team made good progress driving down building expenditure across the portfolio, throw re-negociations with existing suppliers and energy efficiency programmes. This lead to an eight per cent relative cost reduction across the portfolio.
Continue to evaluate acquisition opportunities
The REIT’s management team continued to evaluate a large number of properties for acquisition and is getting closer on a number of opportunities. Schools continue to be an area of focus as they continue to offer strong returns in the current market cycle. As at 31 December 2016, the education sector represented 29 per cent of the REIT’s portfolio income, providing a strong and stable income stream. In October, the REIT manager’s parent, Equitativa Real Estate Limited, was granted an exclusive Emiri Decree, allowing REITs managed by the Equitativa Group to acquire property in Ras Al Khaimah. This Decree directly benefits Emirates REIT, by enlarging its acquisition pool to Ras Al Khaimah onshore properties. Leverage Total debt at the end of 2016 was $315 million. The LTV ratio of the REIT stood at 38 per cent, well below the REIT’s regulatory maximum LTV of 50 per cent.
“Emirates REIT continues to offer strong total returns despite the slower market for commercial property. Our FFO has grown by 38 per cent demonstrating a conversion from valuation gains into actual cash flow. The efforts of the team allowed us to take advantage of the challenging environment to reduce operating costs. Our experience in developing schools has been very successful and we expect the REIT to continue investing in the education sector,” said Sylvain Vieujot, CEO of Equitativa Dubai, the REIT Manager.