Emirates REIT plans to raise at least Dh500 million in what would be the first initial public offering on Nasdaq Dubai since 2008.
The Sharia-compliant real estate trust (REIT), a joint venture between Dubai Islamic Bank and Eiffel Management, intends to use the proceeds to expand its current portfolio of 10 properties valued at more than $323m.
It represents another milestone in the emirate’s property rebound and a boost for the Nasdaq Dubai bourse, which has struggled to attract new listings since its launch in 2005.
“I think the liquidity is coming,” said Sylvain Vieujot, the executive deputy chairman of REIT Management. “I think it will grow as the REIT grows.”
The planned share sale will be a key test of institutional investor sentiment towards real estate in the emirate. Only institutional investors will be able to participate in the initial sale, which will be opened to other buyers after it starts trading. No listing date has yet been disclosed but advisers will start assessing demand for the offering from investors within weeks.
Real estate investment trusts (REITs) own income-producing property that pays dividends to investors based on the underlying performance of those assets.
While some analysts have expected to see more such trusts gain traction in Dubai, a limited supply of property assets typically attractive to institutional investors, such as offices with long leases and blue chip tenants, has held the sector back.
Much of the office space completed in Dubai in recent years was sold off plan and by the floor during the dying days of the 2008 property bubble, making the subsequent sale of entire buildings extremely problematic.
The prospect of negotiating with multiple landlords has made the acquisition of these so called “strata-owned” buildings a turn-off for big institutions that tend to look for long leases, quality tenants and single owners.
This shortage of institutional grade office space in Dubai has encouraged some property investment companies to look at other income-producing property such as schools or car parking spaces – both of which are represented in the Emirates REIT portfolio.
Proceeds from this share sale will be used to buy more properties or develop existing ones. It has already drawn up a short list of target acquisitions.
“This IPO reflects rising confidence in real estate,” said Craig Plumb, the regional head of research at JLL, the international property consultant formerly known as Jones Lang LaSalle.
He expects more existing property portfolio owners and developers to consider creating real estate investment trusts as new vehicles for their property assets.
Emirates REIT was created in the 2010 trough of the Dubai property market and became the first Sharia-compliant real estate investment trust to be incorporated at the Dubai International Financial Centre. Its first purchase was Building 24 in Dubai Internet City.
The REIT generated total comprehensive income of $34.8m last year, up from $10.9m in 2012, mirroring the rapid appreciation of rents in the emirate over the last two years.
Its shareholders include Dubai Islamic Bank (30.9 per cent), Vintage Bullion (23.1 per cent), Dubai Properties (19.6 per cent) and other investors with smaller holdings such as Tecom, EFG-Hermes and Deyaar.
This latest offering comes amid rising confidence in the performance of local shares. The DFM General Index has gained more than 126 per cent in the past year, with the Abu Dhabi Securities Exchange Index rising more than 69 per cent.
Marka, a new retail company, announced plans last month to launch a Dh500m IPO on the Dubai Financial Market. Other local companies are also believed to be preparing share sales.
The upgrade of the UAE in May to emerging market status by the index provider MSCI could provide a further boost for IPOs in the country. MSCI's emerging index is tracked by some $1.4 trillion in flows.
“This year could be a really good year for IPOs,” Essa Kazim, the chairman of the Dubai Financial Market, said on Monday.
scronin@thenational.ae
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