Dubai, United Arab Emirates, 26 May 2023: ENBD REIT (CEIC) PLC, the Shari’a compliant real estate investment trust managed by Emirates NBD Asset Management Limited, has announced its financial results for the year ended 31st March 2023, with the Net Asset Value (“NAV”) rising 7.5% to USD 179 million or USD 0.72 per share. This performance comes as the company successfully captured the benefits of the market recovery through the capital investments made across the portfolio.
ENBD REIT’s property portfolio value rose 3.9% to USD 370 million year-on-year supported by occupancy climbing to 88% from 80% the year before, marking its highest level since 2018 on the back of strong leasing activity and improved asset quality. The comprehensive investments made to improve the tenant offering in a number of buildings across the portfolio, coupled with active asset management strategies, resulted in gross income rising 14.7% to USD 31.3 million from USD 27.3 million the year before. Net income (including non-cash movements in valuations) improved considerably in the year to a positive USD 21.9m compared with a net loss of USD 4.4m in the previous financial year. The net rental income or Funds From Operations (“FFO”), which excludes non-cash movement in valuations and directs dividend payments to shareholders, remained positive and consistent year-on-year, albeit slightly down at USD 9.2m from USD 9.5m the previous year due to the rising finance costs offsetting the improved revenue.
During the year, significant letting milestones were achieved across flagship Office assets including reaching a 91% occupancy level at the Burj Daman located in DIFC, the highest since the asset was acquired in 2015. At Al Thuraya Tower 1 in Dubai Media City, occupancy improved steadily throughout the year to over 64% in May 2023, just a year after completion of the largest refurbishment project for ENBD REIT. The Residential and Alternative assets remained close to fully let during the year in line with positive market sentiment in these sectors across Dubai.
Anthony Taylor, Head of Real Estate at Emirates NBD Asset Management,said:
"The capital investments made to our portfolio in the prior years to drive asset quality have enabled us to deliver an improved operational performance by successfully capturing the benefits of the market recovery with occupancy levels increasing to 88% and the portfolio value rising 3.9% to USD 370 million
Looking ahead, we expect the market to remain buoyant although the impact of higher financing costs will affect our net rental income as interest rates are expected to remain high over the next 12 months."
Despite the lower margins secured through the refinance of the entire debt in November 2021, the rapid increase of interest rates impacted the cost of debt materially with finance costs rising by USD 3.4 million during the year. Post year-end, 50% of the debt was successfully hedged to provide a lower cost in the years ahead and improved predictability during the current interest rate cycle. Operating expenses for the year were 14% higher as direct expenses increased in line with the improved occupancies whilst fund expenses rose slightly on the back of improved valuations and inflationary pressures on service providers.
The Weighted Average Unexpired Lease Term (“WAULT”) decreased to 3.9 years for the overall portfolio due to natural progression to expiry in the year. The Loan-to-Value (“LTV”) ratio reduced to 53% in line with the valuation improvements. All covenants were maintained well below the regulatory LTV threshold of 65% during the year, as per the amendments to the DFSA CIR Rulebook 13.4.5 in 2020.
The commitment to implement sustainable strategies across the portfolio continued following the LEED Gold certification achieved by The Edge Building in March 2022. Al Thuraya was awarded the international WELL Health-Safety Rating making it one of the first buildings in the UAE to register for the certification, putting ENBD REIT at the forefront of building upgrades and renovations across the country. A number of other assets have been identified for certifications that will increase their attractiveness and enable other benefits such as the potential for lower financing costs overtime.
Muhammad Asif Siddique, Senior Finance Manager at Emirates NBD Asset Management and Chief Financial Officer for ENBD REIT, said:
We welcome the positive performance generated by the portfolio during this financial year, with higher occupancies driving improved revenue and valuation gains.
Whilst finance costs had a negative impact on our financial performance, operating expenses and fund expenses were maintained in line with the positive movements in gross revenue due to portfolio improvements and higher occupancies. Since year-end, we have taken proactive steps to manage our cost of debt and successfully hedged 50% of our exposure to benefit from savings due to lower forward pricing and provide more certainty on our finance costs in the current interest rate cycle.
While the real estate market remains buoyant, potential disposal of assets are being carefully considered to lower the LTV to a more comfortable range of 40-45% which should in turn improve net rental returns and dividend payments."
ENBD REIT’s Board of Directors has proposed a final dividend of USD 4.5million or USD 0.018 per share for the 6-month period ending 31st March 2023. This brings the total dividend payable to shareholders for the year to USD 9.0 million, with a 5.3% decrease compared to the previous year.
Subject to shareholder approval of the dividend at the Annual General Meeting on 22 June 2023, the shares will trade ex-dividend on 6 July 2023, with the record date set as 7 July 2023 and the payment date on 27 July 2023.
ENBD REIT’s financial results were prepared in accordance with International Financial Reporting Standards (IFRS) and audited by Deloitte.
