x Abu Dhabi, UAEFriday 28 July 2017

Gems clinches sale and leaseback deal at Dubai school

PineBridge Investments has bought a Gems school campus in Dubai as part of a plan to set up one of the Middle East's first major property investment vehicles buying up schools, clinics and warehouses through sale and leaseback deals.

Gems has struck a sale and leaseback deal for a school campus in Dubai, the first such agreement in the UAE education sector.

PineBridge Investments, a global asset manager spun off from the US insurer AIG in 2010, has bought a Gems school campus in Dubai as part of a plan to set up one of the Middle East’s first major property investment vehicles targeting schools, clinics and warehouses through sale and leaseback deals.

It plans to lease the campus back to the school for a term of more than 20 years.

Under the terms of the agreement, Gems Education, the world’s biggest privately owned operator of schools, said that there would be no change to the school’s operations.

Neither party would disclose the value of the deal or the location of the campus.

Sale and leaseback deals became popular in the last decade as companies sought to realise value from their property assets to plough into their businesses. But the funding model came in for a barrage of criticism in the wake of the Southern Cross crisis in 2011. At the time thousands of frail elderly people in the UK were left facing eviction after the care home Southern Cross undertook a sale and leaseback of hundreds of its care homes but was unable to meet the agreed rents.

Sale and leaseback deals have been rare in the Arabian Gulf, where businesses have typically preferred to retain ownership of their buildings.

It is understood that PineBridge has acquired the school as part of a wider plan to create a US$200 million investment vehicle buying up income-producing property in the UAE and Saudi Arabia.

According to sources close to the deal, PineBridge plans to raise half of the cash in equity from sovereign wealth funds and high net worth individuals. The other $100m will be provided as debt.

“We see significant regional demand for proprietary real estate and private equity investments,” Wael Aburida, the chief investment officer at PineBridge Investments Middle East said yesterday. “Our platform allows us to provide one source of capital to fund our partners’ growth, as well as unlock value in their real estate holdings.”

“We will continue to source real estate investments with long-term leases in social infrastructure, such as education and health care as well as logistics and community retail,” he added. “These will help our investors achieve their investment goals, while supporting regional economic growth.”

The cash will come as a boost to Gems, which last month announced a $500m debut bond sale to fund plans to build 21 new schools around the world over the next three years and to expand capacity at another 10 existing institutions.

“This is a continuation of our strategy for growth,” said Nick Guest, the chief financial officer at Gems Education. “We continue to invest in high-quality new schools; however, a natural solution to allow further growth is to partner with property funds and investors such as PineBridge Investments Middle East, who recognise the importance and stable nature of the education sector within the UAE,” he added.

PineBridge is one of a number of global investors eyeing the UAE property market. In 2010 Pramerica set up a joint venture with Mubadala to create investment opportunities. And earlier this year Brookfield and Investment Corporation of Dubai announced they were putting together a Dh1.8 billion fund to invest in real estate in the emirate.

According to CBRE research Asian pension funds are looking to invest more than US$150bn around the world in real estate, with Dubai one of their potential targets.

“This could be the first of a number of similar deals in the Middle East,” said Craig Plumb, the head of research at Jones Lang LaSalle’s Dubai office. “Traditionally big property funds have struggled to buy stock in the Middle East and so investing in property operated by schools and clinics is a good way of buying an income stream and funding expansion. However, Sharia-compliant funds could have problems if they ever had to evict their tenants.”