The DFSA has found two instances where Equitativa has fallen short when reporting its financials. Image Credit: Supplied

The Dubai Financial Services Authority (DFSA) has imposed a Dh771,225 penalty on the real estate fund manager Equitativa (Dubai) Ltd. For making two “misleading statements” in the past.

This relates to one of the fund’s 11 assets - a school in Dubai Investment Park (the School). “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 said in a statement.

The DFSA also identified concerns around Equitativa’s fund valuation practices.

Equitativa will pay fine and move on
In a statement, Equitativa said that it will not be challenging the DFSA’s decisions and will pay the $210,000 fine.

“The investigations did not find that Equitativa’s fund valuation practices have breached any DFSA administered laws and arrangements,” the fund manager said in a statement. “However, Equitativa has also agreed to enter into an enforceable undertaking to address any DFSA concerns.

“To be clear, none of the findings alleges any financial impropriety on part of Equitativa or its employees, nor to have had any impact on any of Emirates REIT’s audited financial statements. Having agreed to settle with the DFSA, Equitativa can now turn its full attention to reinvigorating Emirates REIT and accelerating its plans for growth.”

On August 28 2018, Equitativa published the fund’s half-year financial statements for the period ending on 30 June 2018. At the time, the said school in DIP 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% occupied with a secure tenant with a 28-year lease in place. 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.”

Made provisions, but later
On April 30 2019, Equitativa published the financial statements for Emirates REIT's 2018 performance.

In those, Equitativa did include a full provision for the $2 million owed by the school in DIP and an impairment for the asset.

Because Equitativa accepted the DFSA’s settlement offer, the fine was reduced by 30%. Were it not for the settlement discount, the fine would have been $300,000.