ENBD REIT announces H1 NAV of USD 198 million (USD 0.79 per share)

ENBD REIT (CEIC) PLC (“ENBD REIT”), the Shari’a compliant real estate investment trust managed by Emirates NBD Asset Management Limited, has announced its Net Asset Value as at 30th September 2020. ENBD REIT’s NAV stands at USD 198 million (USD 0.79 per share), decreasing from USD 230 million from the 6-month period ended 31st March 2020, predominantly due to valuation pressure. The value of the property portfolio has been adjusted down to USD 377 million (from USD 410 million at 31st March 2020) in light of soft real estate market conditions and lower rental income resulting from the Covid-19 pandemic.

Occupancy in the portfolio remains stable at 76% for 30th September 2020 compared to 82% for 31st March 2020. The lower blended occupancy rate reflects softer occupancy at the REIT’s residential assets – in particular Binghatti Terraces and Arabian Oryx House – which has been partially offset by positive leasing performance from assets in the office portfolio including Dubai Healthcare City 25 and Dubai Healthcare City 49. The Weighted Average Unexpired Lease Term (“WAULT”) for the portfolio improved from 3.24 years in March 2020 to 4.05 years in September 2020, due to proactive leasing efforts and renewals by a number of major tenants during this period, including Oracle who renewed for 5 years at The Edge in Dubai Internet City.

The Board of Directors approved an interim dividend of USD 4.85 million or USD 0.0194  per share from the net rental income generated during the 6-month period, which is 4.9% down from the dividend paid to shareholders relating to the previous 6-month period ended 31st March 2020. The dividend represents 80% of net rental income to accommodate a cash reserve for navigating adverse market conditions as well as capital projects planned across the portfolio with the aim of improving occupancy and rental income in the future. The proposed interim dividend is subject to a share capital reduction that was approved by the shareholders at the last AGM in July 2020 and is pending approval by the Dubai International Financial Centre (“DIFC”) Courts. Ex-dividend, record and payment dates for the proposed interim dividend will be confirmed by ENBD REIT in due course, following the DIFC Court approval of the share capital reduction and confirmation by the DIFC Companies Registrar. 

Anthony Taylor, Head of Real Estate at Emirates NBD Asset Management, said:

"As we face significant pressure on valuations and rental income – resulting directly from the impact of the pandemic on the local business environment – we remain focused on managing down operating costs while at the same time upgrading our assets to enhance leasability, especially in the office portfolio. Of note are cost-efficient upgrades that we are making at Al Thuraya Tower 1, Burj Daman and at our two Healthcare City assets, where we are proactive in our leasing efforts. Management continues to engage with tenants across the portfolio to alleviate the impact of the pandemic, with the objective of safeguarding both WAULT and occupancy. The strategy has so far proved effective, and we are pleased to be in a position to pay an interim dividend of 80% of net rental income, subject to approval of a capital reduction by the relevant authorities.”

Funds From Operations (“FFO”) for the interim period stood at USD 7 million, increasing by USD 1.05 million (17.6%) as compared to the 6-month period ended 31st March 2020. The increase included an accounting adjustment of USD 968,248 for adjusted accruals in the REIT’s new property management system, Yardi. The accounting adjustment is a one-off, non-recurring event and has therefore not been considered as part of the recurring net rental income or FFO available for distribution. Excluding the accounting adjustment, FFO has remained fairly consistent during the period due to the implementation of cost saving initiatives, which mitigated the impact of rental deferrals offered to tenants and non-payment by defaulting tenants.

Gross rental income for the 6-month period was USD 17.12 million, while receivables increased by USD 606,098 (23.1%), a result of non-payment of rent, including the Uninest student accommodation asset in Dubailand Residential Complex from July 2020. Management achieved a 21.7% reduction in costs compared to 30th September 2019 and a 7.6% reduction in costs compared to the 6-month period ending 31st March 2020, in all areas of the portfolio including operating expenses, fund management expenses and finance costs.

ENBD REIT’s Loan-to-Value (“LTV”) ratio has increased to 49.6% as a result of valuation write-downs in the property portfolio and the drawdown of USD 13.6 million from available facilities during the 6-month period in anticipation of capital upgrades to assets and the potential need for further rent relief to tenants. The REIT’s management is in regular contact with lenders to ensure all covenants are maintained.