Emirates REIT sees strong rental growth in FY 2016

Emirates REIT Ltd., the UAE’s first regulated Sharia compliant Real Estate Investment Trust listed on Nasdaq Dubai and managed by Equitativa, today reported its audited financial results for the year ending 31st December 2016.

Emirates REIT saw rental income in Q4 2016 increase by 25 percent to US$13.0 million compared to Q42015 US$10.4 million. Overall, for the year ended 31st December 2016, rental income increased 22.8 percent to US$45.3 million. Total property income for the year increased 22.2 percent to US$50.7 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 percent and the weighted average lease expiry of the total portfolio was stable at 8.5 years.

The strong underlying performance over 2016 saw FFO, or funds from operations, or cash profit, increase to US$11.3 million, a year-on-year increase of 37.6 percent.

Revaluation gains over 2016 were US$36.5 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.

As at 31st December 2016, the total portfolio value was US$752.7 million, a year-on-year increase of 12 percent. The net asset value was US$1.65 per share, or US$493 million, a 5 percent increase after the dividend distributions of US$0.4 cents in both January and June 2016.

In 2016, Emirates REIT completed the construction of the new Jebel Ali School campus on time and within the budget. The property, located in the Akoya development in Dubailand, saw an 18.3 percent post completion valuation gain of US$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 US$ 24 million. The estimated IRR on this project is expected to exceed 12 percent.

During the latter part of 2016, the REIT Manager made progress in negotiating pre-leases on over 50 percent of the retail podium gross floor area at Index Tower. This includes competitive negotiations with anchor tenants. The remodeling 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, through negotiations with existing suppliers and energy efficiency programmes. This lead to an 8 percent relative cost reduction across the portfolio.

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 31st December 2016, the education sector represented 29 percent of the REIT’s portfolio income, providing a strong and stable income stream.

In October, 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.

Total debt at the end of 2016 was US$315 million. The LTV ratio of the REIT stood at 38 percent, well below the REIT’s regulatory maximum LTV of 50 percent.

Sylvain Vieujot, CEO of Equitativa Dubai, the REIT Manager, said, "Emirates REIT continues to offer strong total returns despite the slower market for commercial property. Our FFO has grown by 38 percent 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."