Dubai: As a diversification play, investors may invest in a Real Estate Investment Trust — popularly called as REIT — for a long-term play.
The ENBD REIT gave 50 per cent returns in the past 5 years, along with a dividend of nearly 6 per cent per annum, countering lacklustre returns from equity or bond funds.
Tareq Bin Hendi |
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“We see a lot of investors who have bond or equity portfolios, who may own one or two assets, who look at ENBD REIT as a diversification play from their existing holdings,” Tariq Bin Hendi, Director at ENBD REIT told Gulf News.
The fund manager of the said product expects good performance in a year or so.
“We have a track record of over 10 years. We have a strong portfolio which is well occupied. We have a team that has spent 6 months looking at opportunities in real estate. This portfolio is expected to do very well in the next 6-12 months,” said Anthony Taylor, Fund Manager, Real Estate, at Emirates NBD Asset Management.
From the recently raised $105 million (Dh385 million), ENBD REIT wants to invest in more properties over the course of the year.
“We want to deploy those funds over the next two quarters, and we will stabilise the portfolio in the quarter after that,” Bin Hendi said.
Historically, the ENBD REIT has invested in Sharjah and Dubai, and now they plan to expand into other emirates starting with Abu Dhabi.
“The pipeline is very healthy. The team is working on 10-15 transactions at any one time. We have moved a couple of transactions at the execution stage today. In 2-3 months, you will be hearing some announcements from us in terms of deals,” Bin Hendi said.
They may come to the market again to raise more money.
“We are looking at a 2018 capital raise in the secondary market. We would look to come to the market as often as we need to to continue to build up the portfolio,” Bin Hendi said.
Outlook
The outlook for institutional real estate market, where ENBD REIT invests their clients’ money, is positive.
“We have seen early signs that market is about to pick up on institutional assets. It is important for us to invest before the market picks up,” Taylor said.
Fund managers say the yields in local institutional market remains stable after witnessing a pick up at the end of 2011 through 2014.
“Yields have remained flat. We sold five buildings in the last 2 years, and we were transacting at market value or slightly above market value,” Taylor said.
But despite all this, ENBD REIT expects to give 7 per cent dividends to their investors, which compared favourably with other asset classes. On average, the companies in the Middle East gave a 4 per cent dividend yield.
Cushion
And rising interest rates in the United States, and subsequently in dollar-pegged economy like the UAE may not impact the rate sensitive REIT as of now.
ENBD REIT claims that they can absorb another 300 basis points given the high level of returns on the instrument.
“The debt structure that we have in the REIT is one of the critical components for how we can mitigate interest rate rises,” Bin Hendi said.
“You have a buffer between the cost of debt and the yield on the asset that would withstand another 300 bps increase in the interest rate before that starts to have a negative impact on any investor,” Bin Hendi said.
“ The Fund Management team is going to focus a lot of time on the REIT. We need to demonstrate to existing shareholders that this [the listing] was a positive move for them, and also to demonstrate that the track record will be repeated,” Bin Hendi added.
