Want to pick up a piece in that shiny new residential tower in Downtown Dubai? Or an office block on Shaikh Zayed Road, even though you only got a few thousands to spare. Don’t worry, you could soon have that opportunity.
Gulf Islamic Investments’s new real estate investment trust (Reit) aims to make it as accessible as possible for the individual investor who doesn’t have those millions of dirhams at his disposal. “Once we get the Reit listed on Nasdaq Dubai after summer, it’s conceivable that someone with Dh5,000 of spare funds could participate in the fund,” said Pankaj Gupta, Founding Partner and CEO — UAE at GII. “These could be investors who want to create a certain cashflow for their family.
“That’s the reason why we will have the Reit denominated in dirhams, so that these investors do not have to worry about currency exchange losses or dollar account charges.”
GII plans to raise between $200 million (Dh735 million) to $250 million from the IPO, with the funds adding to a corpus of $250 million it has now. There are two other Reits listed in Dubai — one from ENBD and Emirates Reit.
What GII — which was incorporated in DIFC late last year — plans to do is widen the investor base that would look to seek exposures in Dubai’s real estate through Reit vehicles, which typically pool funds from a variety of sources to pick up stakes in properties. But so far, in the UAE, Reits have targeted institutions and high networth individuals to put up the money.
If GII and others prove successful in bringing in smaller investors, it would have a qualitative effect on Dubai and the UAE property market. Developers whose properties get picked up by Reits would find that they have options other than banks and off-plan sales/rentals to pay for their costs.
“Ideally, Reits give access and transparency to common investors and is one sign of a maturing property market,” said Gupta. “One of the most important aspects why more people are getting interested is because Reits offer an excellent opportunity when it comes to the risk-reward ratio.
“Today, an unlevered (those carrying no debt) apartment asset in Dubai can yield an average of 6-7 per cent in a good neighbourhood. That’s much higher than what you get in most other global cities. And if you were to bring in a debt-carrying property, yields would be much higher.”
To date, GII Reit has picked up exposures in a couple of signature assets in Dubai, such as the PwC office building in Emaar Square (which it acquired for $32 million) and a brand new residential high-rise in Downtown (for $52 million).
In a statement, Mohammad Al Nasri, Chairman of GII Reit, said it is finalising a “few more acquisitions” in Dubai over the next three months and also secured a “sizeable credit line on a five-year fixed-term non-amortising basis from a local bank. The target is to have a $300 million asset portfolio before the IPO in November.
According to Gupta, the GII Reit will have a “diversified basket of real estate exposures, from apartments that can generate 6-7 per cent in annual unlevered yields to 12-13 per cent from industrial assets.
“When we launched the Reit, we realised the market was looking for a transparent product that can provide liquidity and cash-on-cash returns to investors. Our aim is to give investors an annual yield of 8-9 per cent net of all fees.
“For that, I need to have a mixed property portfolio rather than a single asset class. Plus, returns can also be generated if we get properties with decent room for appreciation. Whatever we have picked up to date are with head leases of five years, even the residential properties. Having a head lease gives investors the feeling their funds are secured.
“I am looking for a trade-off between optimum rental income as well as decent room for appreciation. We will not be picking up any asset unless it’s generating returns and none of the assets would be vacant.”
Picking up a trophy office asset
GII Reit made quite an impression picking up 45,000 square feet of office space in Emaar Square 4 that had been rented out to the consultancy PwC. “It spreads over two levels and was bought for $32 million,” said Niraj Masand, Partner at Banke M.E., which concluded the transaction in May after a three-month due diligence. “The yield for Grade A office space — at 8 per cent — is fairly high. Reits focus on income generating assets with long-term leases as their business model is to give regular dividends to investors.”
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