The rise of REITs

Gulf Business - - REAL STATE -

De­spite the some­what gloomy con­di­tions in Gulf real es­tate mar­kets in re­cent months, one area of op­ti­mism is real es­tate in­vest­ment trusts or REITs.

Although hav­ing ex­isted for decades in the US and other mar­kets, where part of their ap­peal was the tax ad­van­tages, REITs have only emerged in the GCC over the last few years as reg­u­la­tion has adapted.

In terms of listed ve­hi­cles, it was not un­til Emirates REIT’s ar­rival on the Nas­daq Dubai in 2014 that the UAE’s first was in­tro­duced, although a num­ber of pri­vate ve­hi­cles were formed in the years prior in­clud­ing the $200m Ara­bian Real Es­tate In­vest­ment Trust, set up in 2006 by HSBC and Da­man, and the orig­i­nal Emirates REIT es­tab­lished by Dubai Is­lamic Bank and Dubai Prop­er­ties in 2010.

“In­ter­na­tional funds aim­ing to ge­o­graph­i­cally di­ver­sify across the globe are in­creas­ingly pressed to in­clude Dubai in their port­fo­lio, given the city's dom­i­nant rise as an eco­nomic hub. This has led many funds to en­ter the mar­ket on the back of REITs,” says David God­chaux, CEO of Core Sav­ills.

In March, Emirates NBD listed the UAE’s sec­ond REIT on the Nas­daq Dubai. This was fol­lowed by Abu Dhabi Fi­nan­cial Group’s an­nounce­ment that it would list its own Dh­s3bn ($816.7m) Sharia com­pli­ant REIT this year, fol­lowed by a sim­i­lar an­nounce­ment from FIVE Hold­ings (for­merly SKAI) that it would list a Dhs2.10bn ($570m) REIT for its hos­pi­tal­ity as­sets, in­clud­ing the FIVE Palm Jumeirah Dubai, un­der Abu Dhabi Global Mar­ket.

Glyn Gibbs, re­gional head of busi­ness devel­op­ment for the Mid­dle East and North Africa at ENBD REIT ad­min­is­tra­tor Apex Fund Ser­vices, says REITs are grow­ing in pop­u­lar­ity be­cause they are a means through which in­vestors are able to gain ex­po­sure to larger prop­erty de­vel­op­ments while also pro­vid­ing at­trac­tive and re­li­able re­turns in com­par­i­son to bank in­ter­est rates and more volatile re­gional eq­uity mar­kets.

Div­i­dends for the UAE’s ex­ist­ing REITs range from 6-8 per cent, he says, gen­er­ated from as­sets that are of­ten prop­er­ties with con­sis­tent yields over the medium-term, like schools.

“The thing that has sur­prised most com­men­ta­tors – my­self in­cluded – is just how pop­u­lar this phe­nom­ena has be­come,” he says.

“We have a sit­u­a­tion where we have mo­men­tum and with mo­men­tum comes scale ben­e­fits, par­tic­u­larly as more REITs get launched, in­vestors will have in­creas­ing choice in terms of the types of prop­erty ex­po­sure they can gain ac­cess to through the listed ve­hi­cle.

“REITs will also be­comes a sec­tor it­self within an ex­change and there­fore will be at­tract­ing al­lo­ca­tions from in­ter­na­tional funds in­vest­ing in emerg­ing mar­kets that are bench­marked against in­dex re­turns.”

Gibbs fore­casts that the UAE mar­ket alone could sup­port some­where be­tween seven and 10 REITs in the com­ing years, while there is deemed to be grow­ing po­ten­tial across the Gulf re­gion.

He un­der­stands that ini­tial dis­cus­sions are tak­ing place in Oman to put in place the ap­pro­pri­ate reg­u­la­tion to fa­cil­i­tate a REIT, de­spite the smaller mar­ket size. Bahrain an­nounced reg­u­la­tion for REITs in Novem­ber and Kuwait is deemed to have suf­fi­cient po­ten­tial for them although there is still some way to go on the reg­u­la­tory side.

But the fastest mov­ing mar­ket is also the re­gion’s largest. Saudi Ara­bia opened its Tadawul stock ex­change to REIT list­ings last year and cur­rently has four listed funds – Al­Jazira Mawten REIT, Riyad REIT, Jadwa REIT Al Hara­main and Taleem REIT – with many more ex­pected to fol­low.

“In Saudi Ara­bia my un­der­stand­ing at the mo­ment is there are prob­a­bly in ex­cess of 20 cur­rently in the pipe­line pre­par­ing sub­mis­sion to the Cap­i­tal Mar­ket Au­thor­ity and sub­se­quent list­ing on Tadawul. So we will see how many of those trans­ac­tions go through and how read­ily they can be ab­sorbed by the mar­ket,” Gibbs says.

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